Background

Clean Energy Legislation Amendment Bill
2012

The Clean Energy
Legislation Amendment Bill 2012 makes amendments to the CE Act, the
ANREU Act, the CFI Act, the Fuel Tax Act and the NGER Act.
These amendments cover:

â¢
matters raised during the passage of the Act about which the
Government made commitments to examine alternative approaches;
and

â¢
minor and technical changes.

The Clean Energy
Legislative Package implements the carbon pricing mechanism for
Australia to reduce carbon pollution. Legislation in the
package links the carbon price to the CFI and to credible schemes
overseas. The Package provides assistance to households and
industry which will help households with the impact of the carbon
price, support jobs, protect the competitiveness of
emissions-intensive trade-exposed industries and support energy
security.

Further detail
about the policy context of the Clean Energy Legislative Package is
set out in the Explanatory Memorandum for the Clean Energy Bill
2011.

The amendments to
the CE Act make changes to the liquid fuel Opt-in Scheme in Part 3,
Division 7 which alter the criteria that a person must meet in
order to be declared a designated opt-in person for the purposes of
the Opt-in Scheme and also impose notification and reporting
requirements for persons subject to an obligation under the
Scheme. The CE Act and the NGER Act are changed to amend the
definition of ‘carbon dioxide equivalence’ so that it
applies to fuels which are eligible for the Opt-in
Scheme.

The bill amends
provisions in the NGER Act that allow persons to nominate who has
operational control of a facility when it is not clear who has
operational control of that facility. ‘Operational
control’ is a central principle used to determine who has
responsibility for the emissions of a facility which is covered by
the carbon pricing mechanism.

During passage of
the Clean Energy Legislative Package in 2011, the Government
committed to considering the coverage of gaseous fuels in a similar
manner to the way in which large liquid fuel users may opt-in to
the scheme. This responded to issues raised by the gaseous fuels
industry in the final report of the Joint Select Committee on
Australia’s Clean Energy Future Legislation. Since then, the
Government has consulted extensively with participants in the
gaseous fuels sector to develop a new approach to coverage. This
will allow greater flexibility for LPG, LNG and CNG suppliers when
meeting carbon pricing liabilities.

To implement the
changes requested by the gaseous fuels industry, the bill amends
the CE Act and the Fuel Tax Act to reflect changes in coverage
arrangements for gaseous fuels. From 1 July 2013, a carbon
price will be applied to non-transport liquid petroleum gas and
liquefied natural gas through the carbon pricing mechanism rather
than through fuel tax arrangements. Emissions attributable to
compressed natural gas will be covered by the carbon pricing
mechanism, rather than by fuel tax arrangements, from 1 July
2012.

The bill amends
the CFI Act to extend the timing for methodology determinations to
be backdated. The CFI Act established the CFI, a carbon
offsets scheme that credits abatement in the land sector.
Because CFI projects must be conducted in accordance with a
methodology determination, projects that seek to be backdated must
also be in accordance with a backdated methodology. The
amendment to backdating provisions for methodologies will ensure
that existing offsets projects can transition to the CFI as
originally intended.

The bill also
amends the CFI Act to ensure that CFI projects have all required
regulatory approvals in place before they can receive
credits. It also simplifies the process of finalising
methodology determinations by removing a requirement that the
Domestic Offsets Integrity Committee (DOIC) publish on its website
matters incorporated by reference in determinations. The
explanatory material for methodology determinations will contain a
description of the incorporated material and indicate how it may be
obtained.

The bill amends
the ANREU Act to increase the amount of time during which the CER
may defer giving effect to a transfer instruction from 48 hours to
five whole business days. The bill also amends the ANREU Act
to make provision for conditions restricting or limiting the
operation of certain accounts to apply in prescribed
circumstances.

The bill amends
the ARENA Act and the CER Act to provide for the sharing of
relevant and appropriate information between the CEFC and ARENA and
the CEFC and the CER in specified
circumstances.

The Clean Energy
(Customs Tariff Amendment) Bill 2012 and Clean Energy (Excise
Tariff Legislation Amendment) Bill 2012 make amendments to the
Excise Act, the Excise Tariff Act and the Customs Tariff Act.
The amendments provide that, from 1 July 2012, CNG used for
non-transport purposes will not be subject to the effective carbon
price through the fuel tax system so that it may be covered by the
carbon pricing mechanism.

Date of effect:

Clean Energy Legislation Amendment Bill
2012

Sections 1, 2 and
3 commence on the day the bill receives the Royal
Assent.

Schedule 1, which
makes various amendments to the CE Act, the ANREU Act and the NGER
Act, commences on the later of the day after the bill receives the
Royal Assent or immediately after the commencement of Part 2
of Schedule 1 to the Clean
Energy (Consequential Amendments) Act
2011 .

Schedule 2, which
makes various changes to the CE Act and the Fuel Tax Act, commences
on the latest of:

â¢
the start of the day after the bill receives the Royal Assent;
and

â¢
immediately after the commencement of Schedule 1 to the
Clean Energy (Fuel Tax
Legislation Amendment) Act 2011 ; and

â¢
immediately after the commencement of Schedule 1 to the bill.

Schedules 3 and 4,
which deal with amendments to the CFI Act and the ANREU Act, take
effect the day after the bill receives the Royal
Assent.

Schedule 5, which
deals with changes to the Clean
Energy Finance Corporation Act 2012 , takes effect at the
same time as section 3 of that Act commences.

The amendments to
the Excise Tariff Act and the Excise Act commence on 1 July 2012,
immediately after the commencement made by the amendments contained
in the Clean Energy (Excise
Tariff Legislation Amendment) Act
2011 .

The amendments to
subitem 10.19C are taken to commence immediately after the relevant
amendments made by the Excise
Tariff (Taxation of Alternative Fuels) Act 2011
commence.

The amendments to
the Customs Tariff Act commence on 1 July 2012, immediately after
the commencement made by the amendments contained in the
Clean Energy (Customs Tariff
Legislation Amendment) Act 2011 . That is, they
will apply to goods that were imported on or after 1 July
2012. It also applies to goods imported before 1 July 2012
but not entered into home consumption until on or after 1 July
2012.

Proposal announced:

The Acts which
make up the Clean Energy Legislative Package passed the Senate on 8
November 2011 and variously received the Royal Assent in late
November and early December 2011.

The measures in
the Clean Energy Legislative Package are based on the announcement
on 10 July 2011 and the publication of Securing a clean energy future: The Australian
Government’s climate change
plan .

On 11 October
2011, the Government announced that it would consider changes to
give effect to alternative coverage of gaseous fuels under the
carbon pricing mechanism. The Minister for Climate Change and
Energy Efficiency said in the House of Representatives
that:

‘[a] number of
companies in the consultation process have also expressed interest
in having liquid petroleum gas included in the carbon pricing
mechanism. The government is open to considering this in a
similar manner to the way in which large liquid fuel users may opt
into the scheme and we will consult on options for achieving
it. No amendments however are proposed in relation to this at
this time.’ [1]

The Government
announced the approach to coverage of gaseous fuels by the carbon
pricing mechanism as part of the 2012-2013 Budget on 8 May 2012,
having earlier informed industry participants.

During the public
exposure period for the Package, industry stakeholders expressed a
desire to manage their carbon liability for fuels under the carbon
pricing mechanism instead of paying the equivalent carbon price
through fuel tax arrangements. This arrangement was given
effect through the Opt-in Scheme set out in Part 3, Division 7 of
the CE Act.

Those amendments
in the bill which make minor and technical amendments concern the
operation of measures previously announced as part of the Clean
Energy Legislative Package and, therefore, have not been the
subject of any further specific
announcements.

Financial impact:

Financial impact
($ millions): Mandatory coverage of LPG and
LNG

2011-12

2012-13

2013-14

2014-15

2015-16

Total

Change to
administered revenue (ATO)

0.0

0.0

-75.0

-75.0

-80.0

-230.0

Change to
administered revenue (DCCEE)

0.0

0.0

+75.0

+75.0

+80.0

+210.0

Total impact on
fiscal balance

0.0

0.0

0.0

0.0

0.0

0.0

Total impact on
underlying cash

0.0

0.0

-5.0

+15.0

+10.0

+20.0

Financial impact
($ millions): Mandatory coverage of CNG

2011-12

2012-13

2013-14

2014-15

2015-16

Total

Change to
administered revenue (ATO)

0.0

0.0

0.0

0.0

0.0

0.0

Change to
administered revenue (DCCEE)

0.0

0.0

0.0

0.0

0.0

0.0

Total impact on
fiscal balance

0.0

0.0

0.0

0.0

0.0

0.0

Total impact on
underlying cash

0.0

0.0

0.0

0.0

0.0

0.0

Summary of regulation impact
statement

Coverage of gaseous fuels - Regulation impact on
business

Impact :

The
Regulation Impact Statement (RIS) for carbon pricing mechanism
coverage of non-transport gaseous fuels (LPG, LNG and CNG) is
available at http://ris.finance.gov.au .
The RIS was prepared by DCCEE and has been assessed as adequate by
the Office of Best Practice Regulation.

Main
points:

The
current approach to carbon pricing coverage of non-transport LPG
and LNG through the excise system would impose additional excise
compliance costs for LPG and LNG suppliers. It would also
increase cash carrying costs and reduce flexibility for suppliers
to meet emissions obligations compared to coverage under the carbon
pricing mechanism.

The
current approach to carbon pricing coverage of non-transport CNG
under the excise system would require up to 50 non-transport CNG
producers that had not previously been participants in the excise
system to install metering equipment to enable excise
participation, potentially curtailing expansion and use of CNG by
small producers. CNG producers would also face increased cash
carrying costs and reduced flexibility to meet obligations relative
to the mechanism.

On balance
the advantages of reducing compliance costs and providing greater
flexibility for liable entities in the sector to meet carbon
pricing obligations warrant the inclusion of non-transport LPG and
LNG in the carbon pricing mechanism. A mandatory approach to
coverage is preferable to a voluntary opt-in approach as it would
reduce the complexity of the carbon price and associated
administration and compliance costs. It is expected to apply to
around 10 entities.

Carbon
pricing mechanism coverage of LPG and LNG should commence from 1
July 2013, as earlier commencement (from 1 July 2012) would
create substantial risks that implementation agencies would have
insufficient time to develop detailed systems for carbon pricing
mechanism coverage and adequately test these with industry
stakeholders.

Coverage
of non-transport CNG under the carbon pricing mechanism is
preferred as it will reduce compliance costs for small producers
and reduce administrative costs for the Government relative to
excise system coverage. The carbon pricing mechanism also
provides greater flexibility for CNG producers to choose whether or
not to directly manage their carbon pricing
obligations.

Statement of Compatibility
with Human Rights

Prepared
in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act
2011 .

These
bills are compatible with the human rights and freedoms recognised
or declared in the international instruments listed in section 3 of
the Human Rights
(Parliamentary Scrutiny) Act 2011 .

Overview of the
bills

These
bills amend:

â¢ the CE Act, to ensure that
there is no double counting of CNG under the carbon pricing
mechanism established by the Act, to amend the regulation-making
powers dealing with administrative arrangements and eligibility
requirements in relation to the Opt-in Scheme for liquid fuels, to
provide for the coverage of gaseous fuels by the carbon pricing
mechanism from 1 July 2013, and to make certain other minor
technical amendments;

â¢ the NGER Act, in
relation to the nomination of the person who is to be taken to have
operational control of a facility when two or more persons could
have such control, and to make certain other minor technical
amendments;

â¢ the Fuel Tax Act, to make
consequential amendments in relation to the taxation treatment of
gaseous fuels covered by the carbon pricing
mechanism;

â¢ the CFI Act, to extend the
backdating arrangements for methodology determinations, to remove
the publication requirement in relation to the text of any
materials incorporated by reference in a methodology determination,
and to provide for CFI coverage to be conditional on projects
obtaining all necessary regulatory approvals before Australian
carbon credit units are issued in relation to a
project;

â¢ the ANREU Act, to create a
regulation-making power to impose restrictions or limitations on
the operation of certain Australian National Registry of Emissions
Units accounts, and to increase the period of time within which the
CER can defer giving effect to a transfer
instruction;

â¢ the ARENA Act, to enable the
disclosure of information to the Clean Energy Finance Corporation;
and

â¢ the Excise Act, the Excise
Tariff Act and the Customs Tariff Act. The amendments provide
that, from 1 July 2012, CNG used for non-transport purposes
will not be subject to the effective carbon price through the fuel
tax system so that it may be covered by the carbon pricing
mechanism.

Human
rights implications

The bills
variously engage the following human
rights:

Rights of equality
and non-discrimination

The Clean
Energy Legislation Amendment Bill 2012 amends the NGER Act to
enable two or more persons who might otherwise have
‘operational control’ of a facility to nominate one of
them as the person who is to be taken to have ‘operational
control’ of the facility for the purposes of the NGER Act
and, if the facility is not a facility of a joint venture, the CE
Act. The person with ‘operational control’ of a
facility has certain reporting obligations under the NGER Act and
certain liabilities for greenhouse gas emissions from the facility
under the carbon pricing mechanism established by the CE Act.
The Bill provides that if any of these persons is a foreign person
(being an individual who is not ordinarily resident in Australia, a
corporation incorporated outside of Australia, a body politic of a
foreign country, or a trust where the majority of trustees are
covered by any of these categories) and if any of these persons is
not a foreign person, then a foreign person cannot be
nominated.

The
amendment replaces existing provisions dealing with the nomination
of a person who is to be taken to have operational control of a
facility. The main difference between the existing provisions
and the new amended provisions relates to the timing of the
nomination. The Bill continues the existing requirement that
a foreign person not be nominated if a non-foreign person is
available to be nominated.

The Clean
Energy Legislation Amendment Bill 2012 thus continues the existing
provision for different treatment of persons depending on their
national origin.

The
amendment does not prevent foreign persons from operating or being
engaged in the operation of facilities in Australia or otherwise
exercising their property or other rights in Australia.
Rather, the amendment identifies persons who can voluntarily assume
obligations and liabilities under the NGER and CE Acts. The
rationale for preferring the nomination of non-foreign persons over
foreign persons is that non-foreign persons are more likely to have
assets in Australia and are more likely to be amenable to the
enforcement of relevant obligations and liabilities under the NGER
and CE Acts. The amendment, and its rationale, is therefore
considered compatible with the rights of equality and
non-discrimination.

Privacy and
reputation

The Clean
Energy Legislation Amendment Bill 2012 amends the CE Act to extend
the existing provisions in relation to the OTN (Obligation Transfer
Number) Register to gaseous fuel suppliers. The OTN Register
is maintained by the CER and is open to public inspection.
The Clean Energy Legislation Amendment Bill 2012 requires the CER
to publish on the Register the following information about a
gaseous fuels supplier: its name, address, contact details,
Australian Business Number (ABN) and, if its willingness to accept
quotations of OTNs, in cases where acceptance is not mandatory, is
subject to conditions—those conditions. This mirrors
the arrangements in relation to natural gas
suppliers.

The
listing of gaseous fuels suppliers serves two main purposes.
First, it assists users of gaseous fuels to find a supplier who may
be willing to accept their OTN quotation. It also provides
the CER with a list of suppliers who wish to be notified of any
changes to the OTN Register, such as when an OTN is cancelled,
surrendered, when the name of an OTN holder changes, or when a new
entry is made in the Register. This lowers compliance costs
for suppliers as they will be sent up-to-date information on
changes to the OTN Register. The amendment, and its
rationale, is therefore considered compatible with the right to
privacy.

The Clean
Energy Legislation Amendment Bill 2012 also amends the NGER Act in
relation to the content of the material that must be published by
the CER on its website under section 24 of the NGER Act. In
particular, it removes the requirement to publish a registered
corporation’s gross and net energy consumption, and replaces
it with a requirement to publish the corporation’s net energy
consumption only. This helps give effect to one of the
objects of the NGER Act, which is to inform the Australian public
about greenhouse gas emissions, and energy production and
consumption. The amendment does not require the publication
of any personal information about an individual, and is considered
to be compatible with the right to
privacy.

Further,
the Clean Energy Legislation Amendment Bill 2012 amends the ARENA
Act and the CER Act to enable the disclosure of information to the
CEFC. Information can only be disclosed if the disclosure
will enable or assist the CEFC to perform or exercise any of its
functions or powers. Enabling the disclosure of information
in these circumstances is considered to be compatible with the
right to privacy.

Conclusion

The bills
are compatible with human rights because, to the extent that they
may limit those rights, that limitation is reasonable, necessary
and proportionate.

Outline of chapter

1.1
Chapter 1 explains amendments to the Opt-in Scheme set out in Part
3, Division 7 of the CE Act. These amendments:

â¢
further define the criteria that a person must meet to be declared
a designated opt-in person (DOIP); and

â¢
provide for the enforcement of reporting, record-keeping and
notification requirements.

Chapter 1 also
explains amendments to the NGER Act relating to:

â¢
potential greenhouse gas emissions that allow liability to be
assigned before emissions are produced; and

â¢
nomination of operational control of a facility when it is not
clear who has operational control.

This chapter
covers Schedule 1.

Context of amendments

Opt-in Scheme

1.2
The Opt-in Scheme is to be set out in regulations. A person
who meets the Opt-in Scheme’s criteria can choose to have
emissions from specified liquid fuels covered directly under the
carbon pricing mechanism instead of paying an equivalent carbon
price through the fuel tax system. The amendments augment the
existing provisions of Part 3, Division 7 of the CE Act.

1.3
It is very easy to change the composition of GST groups and GST
joint ventures, which may be the way in which persons participate
in the Opt-in Scheme. This raises some practical difficulties
for the operation of the Opt-in Scheme, which is not intended to
operate with the same degree of flexibility as the GST
system. For example, regular changes of membership within an
opted-in GST group would impose significant administrative burdens
on the CER, the ATO and Customs to track changing liability under
the carbon pricing mechanism. It would also present an
opportunity for GST groups and joint ventures to, in effect,
opt-out of the carbon pricing mechanism at any time for selected
amounts of fuel, by changing the composition of the GST group or
GST joint venture.

1.4
The amendments are designed to address these issues, by providing
that the membership of the GST group or GST joint venture at the
beginning of the relevant financial year is, in effect,
‘frozen’ for the year and the DOIP is liable for the
emissions of that group or joint venture for that year. The
GST group or joint venture is ‘frozen’ only for the
purposes of the CE Act.

Potential greenhouse gas
emissions

1.5
The concept of potential emissions is used to assign liability for
emissions before they are produced. Section 7B of the NGER
Act currently refers to the potential greenhouse gas emissions
embodied in an amount of natural gas. However, the Opt-in
Scheme assigns liability for emissions from other fuel types before
the emissions are produced.

1.6
The amendments allow the concept of ‘potential
emissions’ to be used for the purposes of the Opt-in Scheme
by extending it to fuel types other than natural gas.

Nomination of operational
control

1.7
Sections 11 to 11C of the NGER Act deal with the concept of
‘operational control’, which is used to determine who
has obligations under the NGER Act to report a facility’s
emissions, energy use and production.

1.8
Operational control also determines who is liable for the
greenhouse gas emissions from the facility under the carbon pricing
mechanism. The exceptions are where the liability is
transferred under a liability transfer certificate or where a
designated joint venture (JV) has the facility. Liability for
the emissions of a facility of a designated JV is shared between
the participants in the JV on the basis of the participating
percentage determination for that facility. Participating
percentage determinations are made by the CER.

1.9
The person with ‘operational control’ of a facility is
generally the person with the authority to introduce and implement
operating, health and safety and environmental policies at the
facility, or the person that the CER has declared to have
operational control of the facility.

1.10
In some circumstances it may not be clear who has operational
control of a facility, because two or more people have authority to
introduce and implement the relevant policies and two or more of
those people have equal authority to implement operating and
environmental policies.

1.11
Currently, the persons who have equal authority to introduce and
implement operating and environmental policies at a facility must
together nominate one of themselves as the person with operational
control of that facility.

1.12
The carbon pricing mechanism will begin with a fixed charge period
from 1 July 2012 until 30 June 2015 (called ‘fixed charge
years’), after which the carbon price will be determined by
the market (‘flexible charge years’). The current
provisions have the effect of requiring nomination of operational
control up to twice in each fixed charge year and at least once per
flexible charge year. These requirements may impose
additional compliance burdens on liable entities and others.
This is particularly the case for JV participants, because they are
usually unrelated companies which will need to reach agreement on
operational control issues. The amendments streamline the
nomination process and lessen the compliance burden on
business.

Publication of energy
consumption

1.13
Under section 24 of the NGER Act, the CER is required to publish
totals of scope 1 emissions and scope 2 emissions by 28
February. From 28 February 2014 the CER is also required to
publish the totals of energy consumption for the group (i) as
reported and (ii) ‘adjusted in accordance with the
regulations’.

1.14
The amendments streamline publication of energy consumption
data through only requiring the publication of an adjusted
‘net energy consumption’ figure, which is intended to
avoid potential confusion by users of the published data.

Summary of new law

Opt-in Scheme amendments

1.15
The amendments to the provisions in Part 3, Division 7 of the CE
Act, which underpin the Opt-in Scheme, concern administrative
obligations on participants in the Opt-in Scheme and the
eligibility requirements for DOIPs. These amendments provide
additional powers to ensure that the Opt-in Scheme is robust, and
its requirements are complied with by making reporting,
record-keeping and notification obligations enforceable.

1.16
Changes to the eligibility criteria will ensure that the
flexibility available to members of GST groups and GST joint
ventures does not compromise the integrity of the Opt-in Scheme and
the carbon pricing mechanism.

Potential greenhouse gas
emissions

1.17
The amendments to the NGER Act and the CE Act concerning potential
greenhouse gas emissions allow these provisions to apply to the
liquid fuels covered by the Opt-in Scheme, in addition to natural
gas.

Nomination of operational
control

1.18
The amendments to the NGER Act concerning nomination of operational
control streamline the requirements for nominating operational
control, by removing any requirement for nomination to occur up to
twice for each reporting year in fixed charge years and at least
once for each reporting year in flexible charge years.

1.19
The amendments reduce the compliance requirements associated with
making nominations by allowing a nomination to continue until such
time as the CER cancels it, it is revoked by a new nomination or
until it reaches its end date.

1.20
The amendments empower the CER to cancel nominations that become
unnecessary or unsuitable. This is unnecessary under the
current law because nominations that become unnecessary or
unsuitable could be replaced each time a new nomination became
due. The amendments also allow the nominators to make another
nomination which replaces the original nomination. The
nominators may also set an end date so that they can set a time to
review their arrangement in advance.

Publication of energy
consumption

1.21
The amendments to the NGER Act concerning the publication of energy
consumption streamline publication of energy consumption data
through only requiring the publication of a single figure for
energy consumption which represents ‘net energy
consumption’.

Comparison of key
features of new law and current law

New
law

Current law

Opt-in Scheme -
eligibility test

As well as meeting
criteria specified in regulations, the DOIP must pass the
eligibility test. A person will pass the eligibility test for
the fuel for which they are opting in where the person is the
entity that is entitled to the fuel tax credits (FTCs) for that
fuel or where a member of a GST group or joint venture acquired,
manufactured or imported the fuel in a financial year, the person
was a member of that group or joint venture on 1 July of that
financial year and the group or joint venture would have been
entitled to the FTCs for the fuel if the acquisition, manufacture
or import had taken place on 1 July of that financial
year.

As well as meeting
criteria specified in regulations, the DOIP must pass the
eligibility test. A person will pass the eligibility test
where, for the fuel for which they are opting in, they are the
entity that is entitled to the FTCs for that fuel or they are a
member of the GST group or joint venture that is entitled to the
FTCs for that fuel.

Opt-in Scheme -
notification requirement

The
Opt-in Scheme may make provision for a DOIP to notify matters to
the CER.

There
is no provision for the Scheme to require notification to the
CER.

Opt-in Scheme -
compliance with Scheme requirements

The
notification, reporting and record-keeping requirements under the
Scheme are civil penalty provisions.

The
notification, reporting and record-keeping requirements under the
Scheme are not civil penalty provisions.

Potential greenhouse gas
emissions

The
definition of potential greenhouse gas emissions will apply to
designated fuels. Designated fuels include those covered by
the Opt-in Scheme and natural gas.

The
definition of potential greenhouse gas emissions only applies to
natural gas.

Nomination of operational
control

Nominations of operational control begin on
their start date and persist until they are cancelled by the CER,
revoked by a new nomination or reach their end
date.

Nominations of operational control must be
renewed regularly because they only apply for the financial year or
part of financial year for which they are made.

There
is no civil penalty if a nomination is not made by the due
date.

A
civil penalty of 1,000 penalty units applies if a nomination is not
made by the due date.

Where
a nomination has been made and the facility ceases to pass the
eligible nomination test, each of
the nominators has an obligation to notify the CER of the cessation
unless the cessation occurred because the CER declared a person to
have operational control of the facility. Civil penalties
apply.

There
is no obligation to notify where a facility ceases to pass the
eligible nomination test.

Publication of energy
consumption

The
CER is required to publish ‘net energy consumption’
which is adjusted in accordance with the
regulations.

The
CER is required to publish both the totals of energy consumption as
reported and energy consumption adjusted in accordance with the
regulations.

Detailed explanation of new
law

Preliminaries

1.22
The bill, once enacted, will be called the ‘ Clean Energy Legislation Amendment Act
2012 ’. The bill amends other legislation,
namely the CE Act, the ANREU Act, the CFI Act, the Fuel Tax Act and
the NGER Act, and does not contain any substantive provisions of
its own. [Section 1] [Section
3]

1.23 The provisions of the bill
commence at varying times, depending on the provisions
concerned. These commencement arrangements are described
along with the relevant provisions
below. [Section 2]

Amendments to the Opt-in
Scheme

Eligibility test

1.24
Section 92A of the CE Act sets out the eligibility test that must
be passed by a person that is the DOIP for an acquisition,
manufacture or import of fuel that is covered by the Opt-in
Scheme.

1.25
The existing eligibility test in subsection 92A(4) of the CE Act is
replaced with a new test, which provides that, in addition to
meeting the criteria to be specified in regulations, the DOIP must,
for fuel acquired, manufactured or imported in a particular
financial year for which it is opting in:

â¢
have been a member of a GST group at the start of the financial
year where, if it is assumed that the fuel was acquired,
manufactured or imported at the start of that financial year, the
GST group would have been entitled to the fuel tax credit for that
fuel; [Schedule 1, Part 1, item 19, new
section 92A(4)(a), CE Act] or

â¢
have been a member of a GST joint venture at the start of a
financial year where, if it is assumed that the fuel was acquired,
manufactured or imported at the start of that financial year, the
GST joint venture would have been entitled to the fuel tax credit
for that fuel; [Schedule 1, Part 1, item 19, new
section 92A(4)(b), CE Act] or

â¢
if neither of these criteria apply, then the DOIP must be the
entity that was entitled to the fuel tax credit for the fuel.
[Schedule 1, Part 1, item 19, new section
92A(4)(c), CE Act]

1.26
The amendments remove the ability of members of GST groups and GST
joint ventures that have opted-in to change the composition of GST
groups and GST joint ventures for the purposes of changing their
liabilities under the carbon pricing mechanism in a relevant
financial year. This provides clarity and certainty around
the liabilities of those covered by the carbon pricing
mechanism. It will reduce the potential for administrative
complexity and costs for opted-in liable entities and for the CER,
ATO and Customs.

1.27
The effect of the amendment is to, in effect, ‘freeze’
the membership of the GST group or GST joint venture at the
beginning of the relevant financial year for the year so that the
DOIP is liable for the emissions of that group or joint venture for
that year. The GST group or joint venture is
‘frozen’ only for the purposes of the CE Act. The
provisions do not prevent changes in the group or joint venture
under the GST legislation.

â¢
It is intended that in the case of a GST joint venture, the
operator of the joint venture would pass the eligibility test under
the new section 92A(4)(b) if it was also a participant in the GST
joint venture, or under the new section 92A(4)(c) if it is not a
participant.

Notification
obligation

1.28
The Opt-in Scheme may require a person to notify the CER about
matters which are relevant to the Opt-in Scheme. [Schedule 1, Part 1, item 20, new section 92DA,
CE Act] This means that the CER may be
informed of matters which may be relevant to a person’s
ongoing eligibility under the Opt-in Scheme and related
matters.

1.29
Under sections 92C, 92D and new section 92DA of the CE Act, the
Opt-in Scheme may impose reporting, record-keeping and notification
requirements for a DOIP. These obligations allow the CER to
adequately monitor the fuel use of a participant in the Opt-in
Scheme and be aware of any changes that will affect the eligibility
of a person to be opted-in. Record-keeping requirements will
allow the CER to ensure that the fuel use of a person, and the
liability of the DOIP for that fuel use, is measured
correctly. These records are needed because detailed
information on a person’s fuel use is not required to be kept
under the NGER Act.

1.30
The record-keeping and reporting requirements of the Opt-in Scheme
do not duplicate other record-keeping and reporting mechanisms
elsewhere in the CE Act and only cover those businesses wanting to
participate in the Opt-in Scheme.

1.31
A person who is subject to these requirements is obliged to comply
with them. [Schedule 1, Part 1, item 21, new
sections 92H(1), (2) and (3), CE Act]
Furthermore, a person must not:

â¢
aid, abet, counsel or procure;

â¢
induce, whether by threats or promises or otherwise;

â¢
be in any way, directly or indirectly, knowingly concerned with;
or

â¢
conspire with others to effect,

a contravention of
new sections 92H(1), (2) and (3). [Schedule 1, Part 1, item 21, new sections
92H(4), CE Act]

1.32
The obligations in new sections 92H(1), (2), (3) and (4) of the CE
Act are civil penalty provisions. [Schedule 1, Part 1, item 21, new section 92H(5),
CE Act] Under section 253 of the
CE Act the CER may apply to the court for a civil penalty order
against a person who has contravened a civil penalty
provision. Under section 255 of the CE Act the CER must seek
the order no later than six years after the contravention.
Section 252 of the CE Act provides that the court may order a civil
penalty if it is satisfied a person has contravened a civil penalty
provision.

1.33
Section 9 of the CE Act provides that the CE Act applies to the
Australian, state and territory governments (that is, the Crown in
right of each Australian jurisdiction). However, no
government is liable to a pecuniary penalty. This protection
does not apply to authorities of the Crown or to administrative
penalties or late payment penalties.

1.34
Under section 252 of the CE Act the maximum pecuniary penalty for
contraventions of new sections 92H(1), (2), (3) and (4) of the CE
Act is 10,000 penalty units (currently $1.1 million) for a
corporation or 2,000 penalty units (currently $220,000) for any
other person.

1.35
These are civil penalty provisions because contravening them does
not involve conduct of such serious moral culpability that criminal
prosecution and sanctions are warranted. Further, as most
liable entities are expected to be bodies corporate, the financial
disincentives to misconduct provided by civil penalties are a more
proportionate and effective enforcement tool, reflecting the
practice of other areas of business regulation.

1.36
There is no requirement that the CER prove the person’s
intention, knowledge, recklessness, negligence or any other state
of mind with regard to the penalty provisions in the CE Act.
[Schedule 1, Part 1, item 22, new section
262(1)(ra), (rb) and (rc), CE Act]
Section 262 of the CE Act makes it clear, for the avoidance
of any doubt, that it is not necessary to prove a matter concerning
a person’s state of mind at the time the conduct
occurred. It is simply a matter of proving whether the
relevant provision has been contravened. Where a
person’s state of mind is relevant to the issue at hand, then
this is specifically dealt with in the relevant provision.

1.37
The reporting and notification requirements are continuing
contravention provisions under section 263 of the CE Act. A
person who contravenes these penalty provisions, which involve, for
example, a requirement to do something within a particular period,
commits a separate contravention on each of the days on which the
person fails to comply. [Schedule 1, Part 1, item 23, new sections
263(2)(ga) and (gb), CE Act] Under
section 263 of the CE Act the maximum daily penalty for a
continuing contravention of new sections 92H(1), (2), (3) and (4)
is 500 penalty units (currently $55,000) for a corporation) and 100
penalty units (currently $11,000) for any other person.

1.38
The level of civil penalties for a contravention of new sections
92H (1), (2), (3) and (4) of the CE Act reflects their seriousness
and represents a clear and strong disincentive for
non-compliance. The integrity of the Opt-in Scheme and the
carbon pricing mechanism could be compromised by liable entities
failing to maintain records adequately or at all, and failing to
report or notify accurately or in a timely way. For this
reason, the penalties are significant.

Potential emissions embodied in a designated
fuel

1.39
For the purposes of dealing with emissions embodied in a particular
fuel source, section 7B of the NGER Act currently refers to the
‘potential emissions embodied in an amount of natural
gas’. The concept of ‘potential greenhouse gas
emissions’ is used to assign liability for emissions before
they are produced. In the CE Act, this concept has only been
applied to emissions from natural gas.

Nomination of operational
control

1.44
For the purposes of liability under the carbon pricing mechanism
and for reporting in the NGER Scheme, sections 11AA, 11AB, 11B and
11C of the NGER Act provide for the nomination of
‘operational control’ for facilities where two or more
persons have equal authority over operational and environmental
policies. In these cases, nominations are required to specify
a person who has ‘operational control’ for the purposes
of determining the entity with NGER obligations and/or a liability
under the carbon pricing mechanism for a facility.

1.45
To streamline these requirements and, in particular, to remove the
possibility that repeated nominations have to be made, the bill
repeals sections 11AA,11AB, 11B and 11C of the NGER Act and
includes new sections 11B and 11C.

1.46
New section 11B of the NGER Act applies in situations where two or
more persons potentially have operational control of a
facility. One of those persons can be nominated as the person
with operational control of the facility if the facility passes the
‘eligible nomination test’. A facility passes the
test if, at a time after the start of the carbon pricing
mechanism:

â¢
two or more persons have authority to introduce and implement
operating, health and safety and environmental policies; and

â¢
it is not clear who has operational control of the facility because
no particular person has the greatest authority to introduce and
implement operating and environmental policies; and

â¢
the CER has not declared that a person has operational control of
the facility under section 55 or 55A of the NGER Act.
[Schedule 1, Part 1, item 46, new section 11B(1),
NGER Act]

1.47
If the facility passes the eligible nomination test, the persons
who could be taken to have operational control of the facility can
jointly nominate one of them to be the nominated person for a
specified amount of time.

1.48
New section 11C applies where a trust with multiple trustees has
operational control of a facility, and no declaration of
operational control exists for the facility under section 55 or 55A
of the NGER Act. The trustees can jointly nominate one of
them to be the nominated trustee for a specified amount of
time. [Schedule 1, Part 1, item 46, new
section 11C, NGER Act]

1.50
A nomination must specify the start and end days of the
nomination. [Schedule 1, Part 1, item 46, new
section 11B(2), NGER Act] [Schedule 1, Part 1, item 46, new section 11C(2),
NGER Act]

1.51
The nomination may be made before or after the start day.
However, the start date of the nomination cannot be in a period for
which a person’s obligations under the NGER Act or carbon
pricing mechanism have lapsed and it cannot be after the financial
year next following the financial year that the nomination is
made. There are no restrictions on the end day. This
means a nomination can be in force for a longer time than under
previous arrangements, removing the requirement to make a
nomination at least once every financial year. [Schedule 1, Part 1, item 46, new sections
11B(6)-(9), NGER Act] [Schedule 1, Part 1, item 46, new sections
11C(6)-(9), NGER Act]

1.52
A nomination has no effect if, at the start day of the nomination,
the facility does not pass the eligible nomination test or if the
nominators are not the persons who have potential operational
control. [Schedule 1, Part 1, item 46, new
section 11B(5), NGER Act] [Schedule 1, Part 1, item 46, new section
11C(5), NGER Act]

1.53
If a nomination is in force, liability and emissions reporting
responsibilities continue to apply in the same way as under
existing sections 11B and 11C of the NGER Act. That is, where
the facility is a facility of a joint venture, the nomination of
operational control only relates to reporting obligations under the
NGER Act. Liability is determined by the participating
percentage determination. If the facility is not a facility
of a joint venture, the nomination relates to both reporting
obligations under the NGER Act and liability under the carbon
pricing mechanism. [Schedule 1, Part 1, item 46, new sections
11B(15) and (16), NGER Act] [Schedule 1, Part 1, item 46, new
section 11C(15), NGER Act]

1.54
The rules for liability and emissions reporting where there is no
nomination in force are also unchanged, however, a person will no
longer be liable for a civil penalty if that person fails to make a
nomination by the due date. In these cases, where the
facility is a facility of a joint venture, each relevant person or
trustee is taken to have operational control for the purposes of
reporting under the NGER Act, while liability under the carbon
pricing mechanism is determined by the participating percentage
determination. If the facility is not a facility of a joint
venture, each relevant person or trustee is taken to have
operational control for the purpose of reporting under the NGER
Act, while liability under the carbon pricing mechanism is shared
by the relevant persons/trustees. [Schedule 1, Part 1, item 46, new sections
11B(17)-(19), NGER Act] [Schedule 1, Part 1, item 46, new sections
11C(16) and (17), NGER Act]

1.55
The CER may cancel a nomination if:

â¢
the nominated person does not have potential operational control of
the facility; or

â¢
the facility does not pass the eligible nomination test;

â¢
the nominated person has become an externally administered body
corporate or an insolvent under administration; or

1.56
The effect of a nomination being cancelled is that no nomination
would be in place for that facility, and sections 11B and 11C set
out the consequences of no nomination being made, in terms of
obligations to report and liability for emissions. A
nomination of another of the persons who could be taken to have
operational control of the facility could be made upon an earlier
nomination being cancelled by the CER. Decisions made by the
CER to cancel a nomination on the grounds that the nominee has an
unsatisfactory compliance record would be reviewable under section
56 of the NGER Act. [Schedule 1, Part 1, item 58, new section 56(aaa)
and (aab), NGER Act]

1.57
New section 11D contains a list of matters that constitute an
unsatisfactory compliance record. Those matters may include
acts or omissions by executive officers of a body corporate, such
as where that officer breaches a provision of either the NGER Act
or the CE Act. It is intended that even if that officer
breached a civil penalty provision or committed an offence in
another capacity before becoming an executive officer of the
nominee, this would still constitute an unsatisfactory compliance
record for the nominee. [Schedule 1, Part 1, item 46, new section 11D(1),
NGER Act] Additional matters may be
set out in the regulations so as to provide flexibility in
responding to relevant compliance issues, across the range of
reporting obligations, as they are experienced in the early years
of the carbon pricing mechanism. These matters could, for
example, include breaching a provision of climate change
legislation other than the NGER Act or CE Act. Any future
proposed additions to the list of what constitutes an
unsatisfactory compliance record can be the subject of focused
consultation with affected persons and would be disallowable by the
Parliament. [Schedule 1, Part 1, item 46, new
section 11D(1)(f)(ii), NGER Act] [Schedule 1, Part 1, item 46, new
section 11D(1)(g)(ii), NGER Act]

1.58
Where a nomination has been made and the facility ceases to pass
the eligible nomination test, the nominators have 30 days to notify
the CER of the cessation, unless the cessation occurred because the
CER declared a person to have operational control of the facility,
or because the question of operational control is not relevant to
the NGER Act or the CE Act. [Schedule 1, Part 1, item 46, new sections
11B(20)-(22), NGER Act] [Schedule 1, Part 1, item 57, section
30(2A), NGER Act]

1.59
A person who fails to notify such cessation is liable for a maximum
civil penalty of 400 penalty units (currently $44,000), and each
day that the CER is not notified can amount to a continuing
contravention. This is a civil penalty provision because
contravening it does not involve conduct of such serious moral
culpability that criminal prosecution and sanctions are
warranted. Further, as most persons are expected to be bodies
corporate, the financial disincentives to misconduct provided by
civil penalties are a more proportionate and effective enforcement
tool, reflecting the practice of other areas of business
regulation.

1.60
The level of this civil penalty reflects the seriousness of the
contravention and represents a clear and strong disincentive for
non-compliance. The integrity of the carbon pricing mechanism
could be compromised by a failure to notify in a timely
way.

1.61
Only one nomination may be in place at any given time. A new
nomination has no effect unless it is expressed to replace the
original nomination. When the new nomination starts, the
original nomination is revoked. [Schedule 1, Part 1, item 46, new sections
11B(13)-(14), NGER Act] [Schedule 1, Part 1, item 46, new sections
11C(13)-(14), NGER Act] [Schedule 1, Part 1, item 57, section 30(2A),
NGER Act]

Publication of energy
consumption

1.62
Section 24 currently requires the CER to publish certain
information on its website relating to scope 1 emissions, scope 2
emissions and energy consumption. In relation to energy
consumption for a registered corporation’s group, the CER is
required to publish a total energy consumption figure as well as an
adjusted energy consumption figure.

1.63
To avoid potential confusion by users of the published data, the
Bill amends the publication requirements to require the CER to only
publish an adjusted ‘net energy consumption’ figure for
a corporate group. [Schedule 1, Part 1, item 49, section 24(1)(c),
NGER Act] [Schedule 1, Part 1, item 55, section 24(1C), NGER
Act] As a result, the total energy
consumption figure reported under parts 3 or 3F will not be
required to be published.

1.64
Similarly, the discretionary publication requirements relating to
group members or business units are amended to only include the
publication of ‘net energy consumption’ for each member
of the corporation’s group or each business unit.
[Schedule 1, Part 1, item 50, section 24(1A)(c),
NGER Act]

1.65
To promote consistency and comparability of published data, the
publication requirements relating to data reported by reporting
transfer certificate holders and liability transfer certificate
holders are also amended by the Bill. The new provisions
indicate that for these certificate holders, the CER is required to
publish the ‘net energy consumption’ figure derived
from the report submitted under the NGER Act. [Schedule 1, Part 1, item 52, sections 24(1AD)(a)
and (b), NGER Act] [Schedule 1, Part 1, item 53, section
24(1AD)(c), NGER Act] [Schedule 1, Part 1, item 54, sections
24(1AD), NGER Act]

1.66
‘Net energy consumption’ for the purposes of
publication is calculated based on an adjustment process to be set
out in the regulations. [Schedule 1, Part 1, item 56, sections 24(7) and
(8), NGER Act]

Application and transitional
provisions

1.67
The provisions contained in Schedule 1 to the bill commence on the
later of:

â¢
the start of the day on which the bill receives the Royal Assent;
and

â¢
immediately after the commencement of Schedule 1, Part 2 to the
Clean Energy (Consequential
Amendments) Act 2011 on 1 July 2012. [Section 2]

1.68
The bill provides for transitional arrangements for determinations
made under section 7B of the NGER Act that set out methods for
determining the amount of potential greenhouse gas emissions
embodied in a fuel. An existing determination does not need
to be remade even though the head of power in the NGER Act under
which the determination was made is being amended.
[Schedule 1, Part 2, item
59]

Consequential amendments

Nomination of operational
control

1.69
The bill amends the definition of ‘provisional emissions
number’ in section 5 of the CE Act to indicate that its
meaning is not affected by the repeal of sections 11AA and 11AB of
the NGER Act. [Schedule 1, Part 1, item 7, section 5, CE
Act]

1.70
The bill amends section 7 of the NGER Act to include definitions of
‘externally-administered body corporate’ and
‘insolvent under administration’. This gives the
terms the same meaning as those given in section 9 of the
Corporations Act
2001 . The terms are used in sections 11B and 11C
as grounds that allow the CER to cancel a nomination of operational
control. [Schedule 1, Part 1, item 26,
section 7, NGER Act] [Schedule 1, Part 1, item 27, section 7, NGER
Act]

1.71
The bill amends the definition of ‘operational control’
in section 7 of the NGER Act to indicate that its meaning is not
affected by sections 11AA and 11AB of the NGER Act, which have been
repealed. [Schedule 1, Part 1, item 28,
section 7, NGER Act]

1.72
The bill amends section 7 of the NGER Act to include a definition
of ‘unit shortfall charge’. This gives the term
the same meaning as in section 5 of the CE Act. The term is
used in new section 11D of the NGER Act that sets out the meaning
of ‘unsatisfactory compliance record’.
[Schedule 1, Part 1, item 30, section 7, NGER
Act]

1.73
The bill amends section 7 of the NGER Act to include a definition
of ‘unsatisfactory compliance record’, which indicates
that the term has the meaning given by new section 11D of the NGER
Act. [Schedule 1, Part 1, item 31,
section 7, NGER Act]

1.74
The bill amends section 11 of the NGER Act, which sets out the
basic rule of operational control, so that it has effect subject to
new sections 11B and 11C of the NGER Act, and not sections 11AA and
11AB, which have been repealed. [Schedule 1, Part 1, item 45, section 11, NGER
Act]

Outline of chapter

2.1
Chapter 2 describes the following amendments contained in Schedules
1 and 2 to the bill:

â¢
amendments made to the CE Act to bring about mandatory carbon
pricing mechanism coverage of emissions from non-transport
LPG and LNG from 1 July 2013; and

â¢
amendments to the CE Act related to the coverage of
non-transport CNG under the carbon pricing mechanism from 1
July 2012; and

â¢
amendments to the Fuel Tax Act which ensure that fuel tax credit
(FTC) entitlements will not be reduced for business use of
non-transport gaseous fuels (CNG, LPG and LNG) when those fuels
move into the carbon pricing mechanism; and

â¢
amendments to the Fuel Tax Act that also ensure that when the
non-transport gaseous fuels move into the carbon pricing mechanism,
the agriculture, fishing and forestry industries will become
entitled to a FTC equivalent to the amount of the carbon charge
that is embedded in the price of the fuel.

2.2
Chapter 2 also describes amendments made by the Clean Energy
(Excise Tariff Legislation Amendment) Bill 2012 to the Excise Act
and the Excise Tariff Act and amendments made by the Clean Energy
(Customs Tariff Amendment) Bill 2012 to the Customs Tariff
Act. The amendments ensure that from 1 July 2012, CNG used
for non-transport purposes will not be subject to the effective
carbon price through the fuel tax system.

Context of amendments

2.3
LPG, LNG and CNG intended for use in an internal combustion engine
for road transport were covered by the fuel tax system from
1 December 2011, when excise and excise-equivalent customs
duty was applied to these fuels. Non-transport LPG, LNG and
CNG is not currently subject to excise.

2.4
The Clean Energy Legislative Package will apply an effective carbon
price to non-transport LPG, LNG and CNG by bringing them into the
excise system and applying an automatic partial remission of excise
of an amount that would leave excise equivalent to the carbon price
applying to LPG, LNG and CNG.

2.5
Application of an equivalent carbon price through the fuel tax
system requires excise licensing for LPG and LNG importers,
producers and distributors and CNG producers and has rigorous
requirements for storage and movement of excisable products.
The excise system also requires remission of excise regularly
during the year.

2.6
On 11 October 2011, the Government announced that it would consider
ways in which gaseous fuels could be covered by the carbon pricing
mechanism, consistent with the treatment of liquid fuels.
Inclusion of non-transport LPG and LNG in the carbon pricing
mechanism provides LPG and LNG distributors and marketers with more
flexibility to manage their carbon pricing obligations than the
fuel tax system.

2.7
Including non-transport CNG in the carbon pricing mechanism allows
the emissions obligation to be placed by default on the supplier of
the natural gas from which CNG is produced rather than producers of
CNG. As natural gas suppliers will already be managing much
more substantial obligations for residential and commercial
consumers, any additional burden for those suppliers will be
negligible. Non-transport CNG may be included in the carbon
pricing mechanism through changes to the excise tariff
system.

2.8
The carbon pricing mechanism allows entities to access emission
unit markets to discharge carbon pricing liabilities.
Inclusion in the mechanism also reduces cash carrying costs
associated with meeting obligations under the fuel tax system
during the mechanism’s fixed price period, with carbon price
obligations accounted for once or twice yearly rather than the more
frequent requirements of the excise system.

2.9
Inclusion of these fuels in the carbon pricing mechanism is also
consistent with the general principle that wide coverage of the
mechanism is desirable to maximise opportunities for least-cost
emissions abatement.

Summary of new law

Commencement of coverage and transitional
arrangements

2.10
Non-transport LPG and LNG will have a carbon price applied under
the carbon pricing mechanism from 1 July 2013 in place of the
current arrangements. The current arrangements will apply
from 1 July 2012 to 1 July 2013 and involve the
application of an effective carbon price to non-transport LPG and
LNG through the fuel tax system.

2.11
Mandatory coverage of non-transport LPG and LNG under the carbon
pricing mechanism will begin on 1 July 2013. This allows time
for transitional and compliance arrangements to be carefully
considered, developed and implemented. This aligns the
treatment of non-transport LPG and LNG with the coverage of liquid
fuels by the carbon pricing mechanism. It is also consistent
with the Government’s original commitment on 11 October
2011 to examine coverage of gaseous fuels.

2.12
Under the carbon pricing mechanism, the point at which excise or
customs duty becomes payable (entry into home consumption,
generally by the importer, manufacturer or marketer of
non-transport LPG or LNG) will be the initial point of liability
for emissions resulting from the use of these fuels.

2.13
Regulations made for the CE Act will be able to specify situations
in which a person can quote an ‘obligation transfer
number’ (OTN). This will allow a large end user of LPG,
LNG or CNG to manage their own liability for emissions from these
fuels in specified circumstances. It will also enable
businesses that use these fuels as feedstock to avoid paying a
carbon price in respect of fuel that does not result in
emissions. To bring about coverage of non-transport LPG and
LNG under the carbon pricing mechanism, these fuels will not have
excise and customs duties applied.

Coverage of non-transport
CNG

2.14
To correctly apply the carbon charge on non-transport CNG under the
Government’s Clean Energy Plan, the exemption from fuel
excise or excise equivalent customs duty for non-transport use of
CNG needs to be restored from 1 July 2012. Non-transport CNG
will instead be subject to the carbon price directly under the
carbon pricing mechanism.

2.15
Coverage of non-transport CNG from 1 July 2012 will occur
because:

â¢
CNG is produced from natural gas that is already subject to an
upstream price under the carbon pricing mechanism. This
allows coverage to be implemented relatively simply by removing the
requirement for producers of non-transport CNG to pay carbon price
equivalent excise duty; and

â¢
some small non-transport CNG producers are not currently required
to participate in the excise system, and would be required to
install metering equipment to enable their participation in the
excise system.

2.16
The requirement for CNG producers to pay excise or customs duty on
non-transport CNG will be removed through legislative changes to
excise arrangements for CNG producers and the adjustment of
administrative arrangements by the ATO. The default point of
liability for emissions from non-transport CNG will then rest with
the natural gas supplier that supplies the gas from which the CNG
is produced.

2.17
CNG producers will have the option of quoting an OTN to their
supplier which will enable them to assume mechanism liabilities for
the natural gas they use to create CNG. The natural gas
supplier would not be able to refuse this transfer of
liability.

Off-road use in agriculture, forestry and
fisheries activities

2.18
An equivalent carbon price is not applied to off-road fuel use by
the agriculture, forestry and fishing sectors. This policy
will be continued by allowing non-transport LPG, LNG and CNG users
in these industries to claim fuel tax credits which are equivalent
to the amount of carbon price even when the fuel is subject to the
carbon pricing mechanism and no fuel tax has been paid.

Ongoing coverage of gaseous fuels under the fuel
tax system

2.19
Non-transport CNG will be covered by the carbon pricing mechanism
from 1 July 2012. From 1 July 2013 non-transport LPG and LNG
will move from the effective carbon price under the fuel tax system
to being covered by the carbon pricing mechanism.

2.20
Bringing about coverage of non-transport CNG, LPG and LNG under the
carbon pricing mechanism requires excluding non-transport CNG, LPG
and LNG from excise and customs duties and as a consequence
excluding users of non-transport CNG, LPG and LNG from being able
to claim FTCs for their use of the fuels.

2.21
A new FTC will be available for the agriculture, fishing and
forestry industries. The FTC will be equivalent to the amount
of the carbon price that is embedded in the cost of gaseous fuels
acquired for non-transport use. This is consistent with the
general policy that these industries should not be subject to a
carbon price on the fuels acquired for non-transport use.

Comparison of key
features of new law and current law

New
law

Current law

Carbon price on non-transport
LPG and LNG

A
carbon price will be applied to non-transport LPG and LNG
through the carbon pricing mechanism from 1 July 2013.
From 1 July 2012 to 1 July 2013 a carbon price will be applied
through the fuel tax arrangements as set out in the Clean Energy
Legislative Package.

A
carbon price will be applied to non-transport LPG and LNG
through the fuel tax arrangements from
1 July 2012.

The
liable entity for non-transport LPG and LNG under the carbon
pricing mechanism will generally be the person that is liable to
pay customs or excise duty in respect of the LPG or
LNG.

The
liable entity for non-transport LPG and LNG will generally be the
person that is liable to pay customs or excise duty in respect of the LPG or LNG.

Where
it is not possible to identify whether LPG or LNG will be used for
transport or non-transport purposes when it is entered for home
consumption from excise licensed premises, the carbon price will be
applied through reduced fuel tax credits.

Where
it is not possible to identify whether LPG or LNG will be used for
transport or non-transport purposes when it is entered for home
consumption, the carbon price will be applied through reduced fuel
tax credits.

Large
users of LPG or LNG will be able to quote an OTN to assume direct
liability under the carbon pricing mechanism where allowed by
regulations.

Excise liability is not generally transferrable
to end users of LPG and LNG unless they apply for an excise
license.

From
1 July 2013, carbon price liabilities will be acquitted twice for
each financial year during the fixed price period (by 15 June for
liabilities in respect of the first 3 quarters, and the remainder
by the following 1 February), and once during the flexible
price period (the following 1 February).

Carbon price liabilities will be acquitted on a
weekly or monthly basis.

Carbon price on non-transport
CNG

A
carbon price will be applied to non-transport CNG through the
carbon pricing mechanism from 1 July 2012.

A
carbon price will be applied to non-transport CNG through the
fuel tax arrangements from 1 July 2012.

The
default liable entity for non-transport CNG will be the
supplier of natural gas from which CNG is
produced.

The
liable entity for non-transport LPG and LNG will generally be the
producer of CNG that is liable to pay customs or excise
duty.

Producers of CNG will be able to quote an OTN to
assume direct liability under the carbon pricing
mechanism.

The
liable entity for non-transport LPG and LNG will generally be the
producer of CNG that is liable to pay customs or excise duty.
Producers of CNG will be able to quote an OTN to ensure that their
natural gas supplier is not also liable under the carbon pricing
mechanism.

From
1 July 2012, carbon price liabilities will be acquitted twice for
each financial year during the fixed price period (by 15 June for
liabilities in respect of the first 3 quarters, and the remainder
by the following 1 February), and once during the flexible
price period (the following 1 February).

Carbon price liabilities will be acquitted on a
weekly or monthly basis.

Fuel tax
credits

CNG
(from 1 July 2012) and LPG and LNG (both from 1 July 2013) will be
subject to the carbon pricing mechanism rather than the effective
carbon price under the fuel tax system. When this occurs
there will be no reductions in FTCs by a carbon reduction amount
claimed by businesses when using those fuels.

As
part of the application of an effective carbon price the amount of
FTCs otherwise claimable by business are reduced by an amount equal
to the carbon price that would otherwise apply to the emissions
from that fuel. This applies to both liquid and gaseous
fuels.

If
the CNG, LPG or LNG is subject to the carbon pricing mechanism and
is used in the agriculture, fishing or forestry industry, a fuel
tax credit entitlement for the effects of the carbon pricing
mechanism will be available to users in these
industries.

The
agriculture, fishing and forestry industries are exempted from
reduction in their FTCs by the carbon reduction
amount.

Detailed explanation of new
law

Liability under the carbon pricing
mechanism

2.22
The bill amends the CE Act to provide that, under the carbon
pricing mechanism, a carbon price liability for emissions embodied
in non-transport LPG and LNG applies to:

â¢
an importer or reseller of LPG or LNG that enters imported LPG or
LNG for home consumption;

â¢
a manufacturer or reseller of LPG that enters domestically
manufactured LPG or LNG for home consumption;

â¢
a person that quotes an OTN for a supply of LPG or LNG.
[Schedule 2, item 13, sections 36B-36D, CE
Act]

2.23
For LPG and LNG, liability under the carbon pricing mechanism
applies to potential emissions embodied in the LPG or LNG supplied
and not the actual emissions produced at the time the LPG or LNG is
combusted. This is because liability generally arises before
the LPG or LNG is combusted and emissions are released into the
atmosphere. In practice, there is little difference between
the actual emissions arising from the combustion of LPG and LNG
among different non-transport customers. [Schedule 2, item 13, sections 36B-36D, CE
Act]

Definitions

2.24
The bill amends section 5 of the CE Act to replace the term
‘liquid petroleum gas’ with the term ‘liquefied
petroleum gas’, which is the more commonly used term in the
industry. It is also the term used in the Excise Tariff Act 1921 , which sets
out whether a fuel type is excisable or whether it is covered by
the carbon pricing mechanism. Any references in the NGER
Regulations to ‘liquid petroleum gas’ are to be taken
as references to ‘liquefied petroleum gas’.
[Schedule 1, Part 1, item 5, section 5, CE Act]
[Schedule 1, Part 1, item 6, section 5, CE
Act]

â¢ ‘non-transport
combustion’, being combustion that does not occur in an
internal combustion engine in a motor vehicle or a
vessel. [Schedule 2, item 4, section 5, CE
Act]

2.27
The new definition of ‘gaseous fuel supplier’ is
created as a collective term for the purposes of applying the OTN
provisions of the CE Act, as OTNs will now apply for LPG and LNG,
as well as to natural gas.

2.28
The CE Act defines ‘taxable fuel’ as having the same
meaning as in the Fuel Tax Act. The bill amends the
definition of ‘taxable fuel’ in section 5 of the CE Act
to provide that it does not cover circumstances covered by
paragraph (b) of the definition of ‘taxable fuel’ in
section 110-5 of the Fuel Tax Act (as amended by item 85 of
Schedule 2 to the bill). The effect of this amendment is to
ensure that ‘taxable fuel’ fuel includes CNG, LNG and
LPG subject to the carbon pricing mechanism because this fuel is
excluded from the new definition of ‘taxable fuel’ in
the Fuel Tax Act. [Schedule 2, item 5, section 5, CE
Act]

Liability for LPG or LNG

2.29
The bill includes a new Division 3A after Part 3, Division 3 of the
CE Act which concerns the coverage under the carbon pricing
mechanism of LPG and LNG for non-transport use.

LPG or LNG for non-transport use which is
imported

2.30
New section 36B sets out liability for imported LPG or LNG which is
intended for non-transport use. A person is liable for
potential emissions embodied in LPG or LNG where:

â¢
the LPG or LNG is imported into Australia; and

â¢
the LPG or LNG is entered for home consumption in a financial year
that begins on or after 1 July 2013; and

â¢
customs duty is or was payable by the person on the LPG or LNG, but
duty is automatically remitted because the LPG or LNG is not for
use in an internal combustion engine in a motor vehicle or vessel
(that is, the LPG or LNG is for non-transport use); and

â¢
the LPG or LNG is not exempt under the regulations.
[Schedule 2, item 13, new section 36B, CE
Act]

2.31
It is intended that the regulations could, for instance, provide an
exemption for fuel (typically LPG) which is packaged in small
containers for specific applications which use small volumes of
fuel (such as soldering). It would not be cost effective to
require importers of these products to participate in the
mechanism.

LPG or LNG for non-transport use which is
manufactured or produced in Australia

2.32
New section 36C of the CE Act sets out liability for LNG or LPG
which is manufactured or produced in Australia and is intended for
non-transport use. A person is liable for potential emissions
embodied in LPG or LNG where:

â¢
the LPG or LNG is manufactured or produced in Australia; and

â¢
the LPG or LNG is entered for home consumption in a financial year
that begins on or after 1 July 2013; and

â¢
excise duty is or was payable by the person on the LPG or LNG, but
duty is automatically remitted because the LPG or LNG is not for
use in an internal combustion engine in a motor vehicle or vessel
(that is, the LPG or LNG is for non-transport use); and

â¢
the LPG or LNG is not exempt under the regulations.
[Schedule 2, item 13, new section 36C, CE
Act]

2.33
It is intended that the regulations could, for instance, provide an
exemption for fuel (typically LPG) which is packaged in small
containers for specific applications which use small volumes of
fuel (such as soldering). It would not be cost effective to
require manufacturers of these products to participate in the
mechanism.

LPG or LNG for non-transport use where an OTN is
quoted

2.34
New section 36D of the CE Act sets out liability where a person
quotes an OTN in relation to a supply of non-transport LPG or
LNG. An OTN holder may quote an OTN in relation to a supply
of LPG or LNG from a person that has a preliminary emissions number
for that supply under s36B or 36C of the CE Act. The OTN
holder will assume liability for potential emissions embodied in
the supply of LPG or LNG. [Schedule 2, item 13, new section 36D, CE
Act] [Schedule 2, item 13, new section 36B, CE Act],
[Schedule 2, item 13, new section 36C, CE
Act]

2.35
New sections 58AA and 58AB of the CE Act provide that regulations
may set out the circumstances in which the quotation of an OTN is
required or permitted for supplies of gaseous fuels. An OTN
holder must give a written notice to the supplier in circumstances
where the acceptance of an OTN quotation is mandatory. The
Government proposes that provision will be made for large users of
LPG or LNG to assume liability for direct emissions from LPG and
LNG. Feedstock users of LPG or LNG would also be permitted to
quote an OTN to ensure that they do not pay a carbon price on fuel
that is consumed without producing emissions. Other
circumstances may also be prescribed. [Schedule 2, item 35, new section 58AA, CE Act]
[Schedule 2, item 35, new section 58AB, CE
Act]

2.36
The acceptance of an OTN quotation will be mandatory where a
quotation is required under the regulations or where quotation is
permitted and the conditions specified in the regulations are
satisfied. [Schedule 2, Item 36, section 59,
CE Act] [Schedule 2, item 52, section 60, CE
Act]

Provisional and preliminary emissions
numbers

2.39
New subsections 36B(1), 36B(2), 36C(1), 36C(2), 36D(1) and
36D(2) of the CE Act give rise to preliminary ENs and
provisional emissions numbers (PENs) for the purposes of liability
for covered emissions embodied in supplies of LPG and LNG under the
CE Act. PENs are used to work out an entity’s total
liability under the carbon pricing mechanism, and therefore the
number of eligible emissions units the entity must surrender to
avoid paying a unit shortfall charge.

2.40
Each amount of non-transport LPG or LNG for which a person is
liable gives rise to a preliminary emissions number (preliminary
EN) for the person. A preliminary EN is equal to the amount
of greenhouse gas emissions in tonnes of CO 2 -e embodied
in the amount of LPG or LNG imported or manufactured. [2] [Schedule 2, item 13, new section 36B(1), CE Act]
[Schedule 2, item 13, new section 36C(1), CE Act] [Schedule 2, item
13, new section 36D(1), CE Act]

2.41
Under sections 33, 35 and 36 of the CE Act a person’s PEN is
the sum of the person’s preliminary ENs for the financial
year. If the person has one or more PENs for imported or
manufactured non-transport LPG or LNG in a financial year, the
person is a ‘liable entity’ for that financial year
(see definition of ‘liable entity’ in section 5 of the
CE Act). Entities liable for covered emissions embodied in
LPG and LNG must surrender eligible emissions units, or pay a unit
shortfall charge, for each tonne of emissions for which they are
liable during an eligible financial year. This includes the
requirement to make a provisional surrender by 15 June in a
fixed price year in respect of the first three quarters of the year
or pay a unit shortfall charge. [Schedule 2, item 71, new section 126(7A),
CE Act]

2.42
Entities liable for covered emissions embodied in LPG and LNG have
obligations to report the calculation of their liability to the CER
under sections 15A, 15AA, 22A and 22AA of the NGER Act (see
Chapter 1).

No double-counting - LPG and
LNG

2.43
Emissions from combustion of LPG or LNG that have been subject to
an obligation under new sections 36B or 36C of the CE Act will not
generally form part of the direct emissions liability for a
facility under Part 3, Division 2 of the CE Act, although they will
count towards calculating whether the facility meets thresholds for
liability. New subsections 20(12) and (13) ensure that
emissions from combustion of LPG and LNG are not counted twice,
once for the liable entity for import or manufacture of LPG or LNG
under new sections 36B and 36C of the CE Act, and again when
combusted at a covered facility. These amounts may be
pro-rated if there is a change in control during the year.
[Schedule 2, item 7, new subsections 20(12)-(13),
CE Act] [Schedule 2, item 8, new subsections 21(8C)-(8D), CE Act]
[Schedule 2, item 9, new subsections 22(10)-(11), CE Act] [Schedule
2, item 10, new subsections 23(9C)-(9D), CE Act] [Schedule 2, item
11, new subsections 224(8C)-(8D), CE Act] [Schedule 2, item 12, new
subsections 25(7C)-(7D), CE Act]

2.44
If a person quotes an OTN in relation to the supply of the LPG or
LNG to a facility, the emissions will form part of the obligations
of the facility, and will be netted-out from the obligations of the
supplier of the LPG or LNG. This will allow direct emitters
to assume liability for emissions from LPG or LNG where they meet
any criteria for the quotation of an OTN for LPG or LNG.
[Schedule 2, item 7, new subsections 20(12)-(13),
CE Act] [Schedule 2, item 8, new subsections 21(8C)-(8D), CE Act]
[Schedule 2, item 9, new subsections 22(10)-(11), CE Act] [Schedule
2, item 10, new subsections 23(9C)-(9D), CE Act] [Schedule 2, item
11, new subsections 224(8C)-(8D), CE Act] [Schedule 2, item 12, new
subsections 25(7C)-(7D), CE Act]

Netted-out numbers - LPG and
LNG

2.45
Where a person receives a supply of LPG or LNG from a supplier that
is a liable entity under new section 36B or new section 36C of the
CE Act and quotes an OTN to take on liability for that supply, then
the quotation will give rise to a netted-out number for the
supplier. The netted-out number can be subtracted from the
supplier’s PEN, reducing the supplier’s liability and
ensuring that the emissions from the supply of LPG and LNG are not
double counted. [Schedule 2, item 13, new section 36B(4), CE Act]
[Schedule 2, item 13, new section 36C(4), CE
Act]

2.46
The regulations may also specify that a liable entity in relation
to import, manufacture or production of LPG and LNG can ‘net
out’ certain amounts of LPG and LNG from their PEN.
This allows for ‘fine tuning’ of a supplier’s
liability, which addresses specific circumstances where the general
rules result in liability being applied in situations when it
should not, such as additional cases of double-counting.
[Schedule 2, item 13, new section 36B(5), CE Act]
[Schedule 2, item 13, new section 36C(5), CE Act] [Schedule 2, item
13, new section 36D(5), CE Act]

Coverage of CNG

2.47
From 1 July 2012 non-transport CNG will be exempt from excise duty
or excise equivalent customs duty. Non-transport CNG will be
subject to the direct carbon charge under the carbon pricing
mechanism and as such will not also be subject to the effective
carbon price as imposed via the fuel tax system.

2.48
The fuel tax system refers to the system which imposes excise duty
on domestically manufactured fuels and excise equivalent customs
duty on imported fuels.

2.49
Previous amendments to the Excise Act and Excise Tariff Act were
made by the Clean Energy (Excise
Tariff Legislation Amendment) Act 2011 , so as to impose
an effective carbon price on non-transport business use of CNG from
1 July 2012. Mirror amendments were also made to the Customs
Tariff Act by the Clean Energy
(Customs Tariff Amendment) Act 2011 to deal with
imported CNG.

2.50
The Clean Energy (Excise Tariff Legislation Amendment) Bill 2012
and the Clean Energy (Customs Tariff Amendment) Bill 2012 will
effectively repeal these previous amendments, which were due to
take effect from 1 July 2012, and restore the provisions in the
Excise Act, Excise Tariff Act and Customs Tariff Act to retain the
legislation on CNG as it is currently written. [Section 1] [Section
3]

Amendments to the Excise Act 1901 and the Excise
Tariff Act 1921

2.51
The non-transport CNG tariff rate will be removed from the
Schedule to the Excise Tariff Act and the consequential amendments
made to that Act by Clean Energy
(Excise Tariff Legislation Amendment) Act 2011 . As
a result, sub-item 10.19D (carbon-rated compressed natural gas) and
the associated a rate of duty will no longer appear in the
Schedule. [Schedule 1, items 2 to 9 and 13,
subsections 3(1), 5(1), section 6H, and the Schedule, Excise Tariff
Act]

2.52
As part of the transitional arrangements for the taxation of
transport use of CNG, amendments are scheduled to commence over the
next three financial years, increasing the rate as contained in
sub-item 10.19C. These amendments assumed the
presence of sub-item 10.19D and referenced carbon-rated
compressed natural gas. The Clean Energy (Excise Tariff
Legislation Amendment) Bill 2012 removes these amendments.
[Schedule 1, items 10 to 12, the Schedule, Excise
Tariff Act]

2.53
The Clean Energy (Excise Tariff Legislation Amendment) Bill 2012
restores section 77HA of the Excise Act, which deals with the
concept of CNG that is exempt from excise, is restored to what was
set out originally prior to the amendments made by the
Clean Energy (Excise Tariff
Legislation Amendment) Act 2011 . [Schedule 1, item 1, section 77HA, Excise
Act]

Amendments to the Customs Tariff Act
1995

2.54
The Clean Energy (Customs Tariff Amendment) Bill 2012 removes the
reference to carbon-rated compressed natural gas and associated
rate from Schedule 3 of the Customs Tariff Act and amends other
schedules that have references to that item to exclude the
reference . [Schedule 1, Part 1,
items 1 to 9, Schedules 3,5,6,7 and 8, Customs Tariff
Act]

2.55
Subsection 19A(3) of the Customs Tariff Act was intended to provide
the means by which changes in the duty rates calculated take into
account increases in the effective carbon price over the fixed
price period and the move to the floating price were inserted into
the relevant schedules. This is no longer required.
[Schedule 1, Part 2, items 11 and 12, subsections
19A(3) to (5), Customs Tariff Act]

No double-counting -
CNG

2.56
Emissions from the combustion of non-transport CNG at a facility
will be counted towards the calculation of the facility’s
threshold for participation in the carbon pricing mechanism, but
will not give rise to an emissions liability, unless the CNG is
produced at the facility and a person quotes an OTN in relation to
the natural gas used to produce the CNG. [Schedule 1, Part 1, item 8, new section
20(10)-(11), CE Act] [Schedule 1, Part 1, item 9, new section
21(8A)-(8B), CE Act] [Schedule 1, Part 1, item 10, new sections
22(8)-(9), CE Act] [Schedule 1, Part 1, item 11, new section
23(9A)-(9B), CE Act] [Schedule 1, Part 1, item 12, new section
24(8A)-(8B), CE Act] [Schedule 1, Part 1, item 13, new section
25(7A)-(7B), CE Act]

2.57
Non-transport CNG will be removed from coverage under the customs
and excise systems by legislative changes to excise arrangements
for CNG producers and the adjustment of administrative arrangements
by the ATO. As non-transport CNG will no longer be subject to
any duty under the Customs Tariff Act or the Excise Tariff Act, it
will no longer be excluded from coverage in the carbon pricing
mechanism under section 30(2) of the CE Act.

2.58
In general this will result in liability defaulting to the supplier
of the natural gas that is used to produce non-transport CNG, with
that supplier likely to pass through the cost of compliance with
the carbon pricing mechanism in the price of natural gas supplied
to the CNG producer. However, the CNG producer would also be
able to quote an OTN under section 58 of the CE Act to directly
assume liability for the gas used if it wished to.

2.59
In situations where an OTN is not quoted for natural gas used to
produce CNG, the emissions from combustion of CNG do not give rise
to a direct emissions liability. Otherwise the CNG user would
face the carbon price twice, once from the price pass-through from
the natural gas supplier, and a second time through the direct
emissions obligations for the combustion of the CNG. However,
in cases where an OTN is quoted for natural gas used to produce
CNG, and the emissions from that CNG count towards a direct
emissions liability, the person who quotes the OTN will be able to
net-out the number from its emissions obligations to eliminate
double counting. [Schedule 1, Part 1, item 15, new section 35(6A),
CE Act]

2.60
New section 41-35 of the Fuel Tax Act will provide a general
exclusion for users of CNG, LPG and LNG fuels that are subject to
the carbon pricing mechanism from entitlement to claim FTCs.
[Schedule 2, item 78, section 41-35, Fuel Tax
Act]

2.61
Whether a particular gaseous fuel is subject to the carbon pricing
mechanism is set out by reference to the CE Act. Broadly, if
the fuel is subject to a PEN under the CE Act then no FTCs can be
claimed.

2.62
CNG will be taken to be subject to the carbon pricing mechanism if
a person has a PEN for a financial year and the PEN is attributable
to the supply of natural gas used to manufacture or produce the
CNG. [Schedule 2, item 79, subsection
42A 5(3), Fuel Tax Act]

2.63
Similarly, LPG and LNG will be taken to be subject to the carbon
pricing mechanism if a person has a PEN for a financial year and
the PEN is attributable to the import, manufacture or production of
the LPG or LNG. [Schedule 2, item 79, subsection 42A-5(4), Fuel
Tax Act]

2.64
Broadly, under the CE Act, a PEN represents the emissions which
give rise to a liability under the carbon pricing
mechanism.

2.66
Where a person acquires one of the gaseous fuels and that fuel has
been subject to the carbon pricing mechanism within the meaning of
new subsections 42A-5(3) or (4) of the Fuel Tax Act then the person
will be entitled to a FTC. The existing rule that a person
must acquire the fuel for use in carrying on an enterprise and be
registered for the GST to obtain a FTC operates in this
situation.

Amount of FTC

2.67
In broad terms the amount of the FTC is the amount by which a FTC
will otherwise be reduced by the ‘carbon
reduction’. The carbon reduction for all fuels is the
equivalent of the carbon charge on the fuel had the fuel been
subject to the carbon charge. [Schedule 2, item 81, subsection 43-5(1 ), Fuel
Tax Act] [Schedule 2, item 82, subsections 43-5(4) and (5), Fuel
Tax Act] [Schedule 2, item 85, section 110-5, paragraph (a) of new
definition of ‘taxable fuel’, Fuel Tax
Act]

2.68
The amount of the carbon reduction will be based in 2012-13,
2013-14 and 2014-15 on a carbon charge of $23.00 per tonne, $24.15
per tonne and $25.40 per tonne respectively. From 1 July
2015, the FTC carbon reduction will be based on the preceding
six-month average carbon unit auction price. The average
auction price used on 1 July 2015 will be for the preceding
six-month forward permit auctions. For subsequent periods the
average price used will be for the actual six-month period.

2.69
The new FTCs will be adjusted in the same way.

Example
2.1 Adjusting FTCs

Huey undertakes
qualifying agricultural activities and qualifies for FTCs. He
acquires 210 litres of LPG to use for heating a remotely sited
shearing shed during the 2013-14 financial year. Huey would
be entitled to a FTC credit for the amount of LPG (210 litres)
times the carbon reduction for LPG for 2013-14 (3.864 cents per
litre).

Application and transitional
provisions

Clean Energy Legislation Amendment Bill
2012

2.71
The provisions in Schedule 2 of the bill will commence on the
latest of:

â¢
the start of the day after the bill receives the Royal Assent;
and

â¢
immediately after the commencement of Schedule 1 to the
Clean Energy (Fuel Tax
Legislation Amendment) Act 2011 ; and

â¢
immediately after the commencement of Schedule 1 to the bill.
[Section 2]

2.72
CNG that has been supplied will have a PEN in respect of that
supply from the beginning of the 2012-13 financial year and so
there will be no FTC reductions for CNG acquired from the beginning
of that year. The new FTC for the agriculture, fishing and
forestry industries’ use of CNG will also commence from the
beginning of the 2012-13 financial year.

2.73
LPG and LNG will only have PENs when the fuel is entered into home
consumption from the 2013-14 financial year. Consequently
there will be FTC reductions for those gaseous fuels for the
2012-13 financial year but not beyond. The new FTC for the
agriculture, fishing and forestry industries’ use of LPG and
LNG will also not commence until the beginning of the 2013-14
financial year.

2.74
The amendments to the Excise
Tariff Act 1921 and the Excise Act 1901 commence on
1 July 2012, immediately after the commencement made by the
amendments contained in the Clean Energy (Excise Tariff Legislation
Amendment) Act 2011. [Section 2]

2.75
The amendments to sub-item 10.19C are taken to commence immediately
after the relevant amendments made by the Excise Tariff (Taxation of Alternative Fuels)
Act 2011 commence. [Section 2]

2.76
The amendments to the Customs Tariff Act commence on
1 July 2012, immediately after the commencement made by
the amendments contained in the Clean Energy (Customs Tariff Legislation
Amendment) Act 2011 . That is, they will apply to goods
that were imported on or after 1 July 2012. They also
apply to goods imported before 1 July 2012 but not entered into
home consumption until on or after 1 July 2012.
[Section 2]

Outline of chapter

3.1
Schedule 3 to the bill amends provisions of the CFI Act relating to
projects approved on the condition that they obtain the necessary
regulatory approvals, and removes a requirement that the Domestic
Offsets Integrity Committee (DOIC) publish matters incorporated by
reference in methodology determinations. It also amends the
CFI Act to extend the timing for methodology determinations to be
backdated.

Context of amendments

3.2
The CFI, which was set up by the CFI Act, is a carbon offsets
scheme that is part of Australia's carbon market. The CFI
allows farmers and land managers to earn carbon credits by storing
carbon or reducing greenhouse gas emissions on the land.
These credits can then be sold to people and businesses wishing to
offset their emissions.

3.3
The CFI also helps the environment by encouraging sustainable
farming and providing a source of funding for landscape restoration
projects.

Regulatory approvals

3.4
All CFI projects are required to obtain all necessary regulatory
approvals. This was an important element of addressing
potential negative impacts of projects on the local environment and
communities.

3.5
The CFI Act allows the CER to conditionally approve projects that
have not yet obtained all regulatory approvals. This is
because obtaining such approvals can be costly and time-consuming,
and proponents need certainty that their project would be eligible
under the CFI before making such an investment.

3.6
At present, project proponents are required to obtain the relevant
regulatory approvals by the end of the first crediting period for
the project. A crediting period is normally seven years, or
15 years for reforestation projects.

3.7
Proponents can report on their project and receive credits 12
months after the project commences. Proponents could
therefore receive Australian carbon credit units prior to obtaining
regulatory approval for their project.

3.8
The proposed amendment addresses this risk by requiring that
approvals are obtained prior to the end of the first reporting
period, rather than the first crediting period. This means
that the approval must be obtained before credits are issued.

Publication of matters by the
DOIC

3.9
The CFI Act currently requires the DOIC to publish on its website
the text of any matters incorporated by reference in methodology
determinations, such as an international measurement standard.

3.10
Complying with this provision could involve lengthy negotiations
and some expense to secure the right to publish material on the
DOIC website. This could considerably delay the finalisation
of methodology determinations.

3.11
The amendment will remove the requirement for the DOIC to publish
the matters. Instead, the explanatory material for
methodology determinations would contain a description of the
incorporated material and indicate how it may be obtained.
Material that is incorporated into legislative instruments is
normally dealt with in this way.

Backdating of
methodologies

3.12
All CFI projects must be conducted in accordance with a methodology
determination, which is a legislative instrument made by the
Minister. Prior to the Minister making a methodology
determination, the DOIC must provide a recommendation as to whether
or not the determination meets the offsets integrity standards
established within the CFI Act.

3.13
The CFI Act currently allows for methodology determinations to be
expressed to have come into force on 1 July 2010, if they are made
by 30 June 2012. Projects using these methodologies can be
backdated to 1 July 2010, and can be issued credits for all
abatement that has occurred since 1 July 2010, provided they were
undertaken in accordance with the methodology and met other CFI
requirements in that period.

3.14
It has taken longer than initially anticipated for methodologies to
be assessed and made into methodology determinations. This is
because, initially, each methodology raises new policy and
technical issues.

3.15
This amendment will enable methodologies for existing abatement
projects to be eligible for backdating as originally intended.

Summary of new law

Regulatory approvals

3.16
The amendment will require participants to obtain all regulatory
approvals by the end of the project’s first reporting
period.

Publication of matters by the
DOIC

3.17
The amendment removes a requirement for the DOIC to publish matters
incorporated by reference in methodology determinations.

Backdating of
methodologies

3.18
The amendment allows more time for submission and assessment of
methodology applications that can be backdated.

Comparison of key
features of new law and current law

New
law

Current law

The CER
may declare an eligible offsets project, subject to the condition
that all regulatory approvals must be obtained during the first
reporting period.

The CER
may declare an eligible offsets project, subject to the condition
that all regulatory approvals must be obtained during the first
crediting period.

There will
be no requirement for the DOIC to publish matters applied, adopted
or incorporated by reference in methodology
determinations.

The DOIC
must publish on its website the text of any matters applied,
adopted or incorporated by reference in methodology determinations,
unless publication would infringe copyright.

A project can be
declared to have commenced from a date no earlier than 1 July 2010,
provided:

â¢
the application for the methodology was submitted to the DOIC on or
before 30 June 2012; and

â¢
the relevant methodology determination is made on or before 30 June
2013, and

â¢
the determination is expressed to have come into force on 1 July
2010; and

â¢
the project was undertaken in accordance with the methodology and
other CFI requirements in the backdated period.

A project can be
declared to have commenced from a date no earlier than 1 July 2010,
provided:

â¢
the relevant methodology determination is made on or before 30 June
2012, and

â¢
the determination is expressed to have come into force on 1 July
2010; and

â¢
the project was undertaken in accordance with the methodology and
other CFI requirements in the backdated period.

Detailed explanation of new
law

Regulatory approvals

3.19
The bill amends paragraphs 15(2)(e), 34(2)(a) and 168(1)(h) and
subsections 28(2) and 31(1) of the CFI Act to replace
“crediting period” with “reporting period”
in instances where it refers to requirements to obtain regulatory
approvals. These references relate to the issuance of a
certificate of entitlement, the making of a project declaration
conditional on obtaining a regulatory approval, varying a project
declaration to remove such a condition, unilateral revocation of a
project declaration if the proponent fails to obtain the approval,
and the listing of any such condition on the Register of Offsets
Projects. [Schedule 3, Item 1, section
15(2)(e), CFI Act] [Schedule 3, Item 2, section 28(2), CFI Act]
[Schedule 3, Item 3, section 31(1), CFI Act] [Schedule 3, Item 4,
section 34(2)(a), CFI Act] [Schedule 3, Item 6, section 168(1)(h),
CFI Act]

Publication of matters by the
DOIC

3.20
The bill repeals subsections 106(10) and (11) of the CFI Act.
This removes the requirement for the DOIC to publish on its website
any matters applied, adopted or incorporated by reference in a
methodology determination. The explanatory statements for
methodology determinations will include descriptions of any matters
applied, adopted or incorporated by reference, and include
information on how to obtain the instrument or writing within which
the matter is contained. [Schedule 3, Item 5, section 106, CFI
Act]

Backdating of
methodologies

3.21
The bill amends subsection 122(3) of the CFI Act to provide that
methodology determinations made on or before 30 June 2013 may be
expressed to have come into force at the start of 1 July 2010,
provided that the application for endorsement of the methodology
was submitted to the DOIC on or before 30 June 2012. This
amendment allows the backdating of methodology determinations that
were anticipated to be made on or prior to the originally specified
date of 30 June 2012. [Schedule 3, Item 7, section 122, CFI
Act]

Application and transitional
provisions

3.22
The provisions in Schedule 3 to the bill commence on the day after
which it receives the Royal Assent. [Section 2]

3.23
Transitional arrangements will apply for any projects declared
eligible, subject to obtaining a regulatory approval, prior to the
commencement of these provisions. Any project which,
immediately before the commencement of these provisions, is subject
to a requirement to obtain a regulatory approval before the end of
the first crediting period will be taken to be subject to a
requirement that the approval is obtained before the end of the
first reporting period instead. [Schedule 3, Item 8, CFI
Act]

Outline of chapter

4.1
Chapter 4 explains amendments to the ANREU Act concerning the
circumstances in which restrictions relating to the operation of a
Registry account apply and the period within which the CER may
defer giving effect to a transfer instruction.

Context of amendments

Amendments relating to the imposition of
restrictions on the operation of Registry
accounts

4.2
The ANREU Act provides the legislative basis for the Registry.
The Registry tracks the location and ownership of carbon
units issued under the CE Act, Australian carbon credit units
(ACCUs) issued under the CFI Act, and certain international
emissions units, including certain units issued in accordance with
the Kyoto rules (Kyoto units). Carbon units and ACCUs can
only be issued to or held by a person if the person has a Registry
account.

4.3
Detailed provisions relating to the opening of Registry accounts
are set out in the ANREU Regulations. Those regulations
provide that the CER can only open an account for a person if
satisfied that the person meets the fit and proper person
criteria. In assessing whether a person meets the fit and
proper person criteria, the CER has regard to a number of matters,
including whether the person has been convicted of offences
relating to dishonesty, whether the person has complied with the
ANREU and NGER Acts, and whether the person is an
externally-administered body corporate or an insolvent under
administration.

4.4
Proposed amendments to the ANREU Regulations will relax the fit and
proper person requirement in relation to liable entities and
persons who are eligible to receive free carbon units under the CE
Act. This is to ensure that liable entities are not precluded
from meeting their surrender obligations under the CE Act by reason
of their solvency status, for example. It is also to ensure
that persons who would otherwise be eligible to receive free carbon
units under the Jobs and Competitiveness Program or in accordance
with Part 8 of the CE Act are not precluded from being issued those
units because of their solvency status.

4.5
The amendment to section 27 of the ANREU Act is intended to allow
restrictions to be imposed on the operation of accounts opened in
circumstances where the CER is not satisfied that the account
holder meets the fit and proper person criteria. This is to
safeguard the integrity of the Registry and protect it from abuse,
whilst also ensuring that liable entities can meet their surrender
obligations and persons who would otherwise be eligible to receive
free carbon units can be issued those units.

Amendments relating to the deferral of transfer
instructions

4.6
Section 28A of the ANREU Act confers power on the CER to defer
giving effect to an instruction to transfer a unit to or from a
Registry account for a period not exceeding 48 hours in certain
circumstances. This section is amended to increase the time
in which instructions can be deferred to five whole business days
to enhance the capacity of the CER to deal with suspicious
conduct.

Summary of new law

Amendments relating to the imposition of
restrictions on the operation of Registry
accounts

4.7
The bill amends the ANREU Act to enable regulations to identify
Registry accounts that are subject to restrictions or limitations
in relation to the operation of the account, including restrictions
or limitations on the transfer of carbon units, ACCUs, Kyoto units
or prescribed international units to or from the identified account
or the issue of carbon units to the account.

Amendments relating to the deferral of transfer
instructions

4.8
The bill amends the ANREU Act to increase the period within which
the CER can defer giving effect to an instruction from no more than
48 hours to no later than the end of the fifth business day after
the day on which the instruction was received.

Comparison of key
features of new law and current law

New
law

Current law

Regulations may restrict or limit the operation
of identified Registry accounts.

There
is no power to prescribe restrictions or limitations on the
operation of identified accounts, other than by imposing
transaction limits on accounts that are opened using less stringent
identification procedures.

Instructions to
transfer units can be deferred until the end of the fifth business
day after the day on which the instruction was received.

Instructions can be deferred for no more than 48
hours.

Detailed explanation of new
law

Amendments relating to the imposition of
restrictions on operation of Registry
accounts

4.9
The bill amends section 27 of the ANREU Act to provide that
regulations made for the purposes of subsection 27(1) of the ANREU
Act may restrict or limit the operation of certain Registry
accounts, to be called ‘restricted Registry
accounts’. [Schedule 4, item 2, section 27(3A), ANREU
Act]

4.10
The regulations may prohibit, restrict or limit the transfer of
carbon units, ACCUs, Kyoto units or prescribed international units
to or from a restricted Registry account. The regulations may
also prohibit, restrict or limit the issue of carbon units to a
restricted account. The regulations could, for example,
provide that an account opened for a person who did not meet the
fit and proper person criteria (discussed in 4.3 and 4.3 above) is
a restricted Registry account, and prohibit the transfer of units
into the account if the transfer would result in the account
exceeding a set number of units. [Schedule 4, item 2, section 27(3B), ANREU Act]
[Schedule 4, item 2, section 27(3C), ANREU
Act]

4.11
As the detailed rules relating to the circumstances in which a
Registry account are opened are set out in regulations, it is
appropriate that the rules relating to when accounts are subject to
restrictions limiting the operation of the account are also set out
in regulations. This ensures that the restrictions can be
appropriately tailored having regard to the content of the account
opening rules.

4.12
The CER’s power in section 28C of the ANREU Act to impose
conditions on the operation of accounts is unaffected. The
CER may still exercise this power if satisfied that it is prudent
to do so to ensure the integrity of the Registry, to prevent,
mitigate or minimise abuse of the Registry or to prevent, mitigate
or minimise criminal activity involving the Registry. The
existence of the section 28C power does not limit the content of
regulations made under subsection 27(1). [Schedule 4, item 2, section 27(3E), ANREU
Act]

4.13
Unlike section 28C, the restrictions imposed in accordance with
this amendment are not intended to rely on the exercise of the
CER’s discretion. Rather, prescribed restrictions are
intended to apply in prescribed circumstances.

4.14
The power in section 11 of the ANREU Act to prescribe transaction
limits that apply to Registry accounts opened using less stringent
identification procedures is also unaffected.

4.15
New subsections 27(3A) and (3B) are not intended to limit the
otherwise broad power to make regulations making further provision
in relation to the Registry. [Schedule 4, item 2, section 27(3D), ANREU
Act]

Time period for delay in Registry
transactions

4.16
The bill amends subsection 28A(2) of the ANREU Act to replace the
period in which the CER can defer giving effect to a transfer
instruction, currently set at 48 hours, with a period which lasts
until the end of the fifth business day after the day on which the
instruction was received. [Schedule 4, item 3, section 28A(2), ANREU
Act]

4.17
Business days are defined as they exist in the Australian Capital
Territory, where the Registry will be based, and therefore do not
include Saturdays, Sundays or ACT public holidays as gazetted from
time to time. [Schedule 4, item 1, section 4, ANREU
Act]

4.18
Carbon units, ACCUs, Kyoto units and prescribed international units
must be transferred within the Registry ‘as soon as
practicable’ after an electronic instruction to transfer is
received by the CER (see section 107 of the CE Act, section 156 of
the CFI Act and sections 34 and 51 of the ANREU Act).
International transfers will generally also need to be made as soon
as is practicable.

4.19
It is expected that routine processing of transfer transactions,
including checking for fraudulent transactions, could in some
circumstances take up to five business days and that it will only
be practicable to transfer the units once that processing has taken
place. Only then will consideration be able to be given to
the question of deferral of suspicious transactions under section
28A of the ANREU Act. It is therefore necessary to extend the
time in section 28A to allow for deferral of suspicious
transactions while further action (such as refusal to give effect
to the transfer under section 28B of the ANREU Act) is
considered.

Example
4.1 Current law - Time period in which an
instrument may be made

If Stephen, an
account representative, engaged in trading activity late on a
Friday evening, then the 48 hour period in which the CER may take
action would end on the following Sunday evening.
Furthermore, this sort of activity could also occur on public
holiday weekends, when Stephen may seek to take advantage of a
longer period.

Example
4.2 New law - Time period in which an
instrument may be made

If Zali, an
account representative, engaged in trading activity on Wednesday,
then the five business day period in which the CER may take action
would end at the end of the following
Wednesday.

If Zali engaged in
trading activity late on a Friday evening, then the five business
day period in which the CER may take action would end at the end of
the following Friday.

Application and transitional
provisions

4.20
The provisions in Schedule 4 to the bill commence on the day after
which it receives the Royal Assent. [Section 2]

Outline of chapter

5.1
Chapter 5 explains amendments to the ARENA Act and the CER Act
concerning the sharing of information between the CEFC and ARENA,
and the CEFC and the CER. This Chapter covers Schedule
5.

Context of amendments

5.2
The CEFC will make decisions concerning investments in clean energy
technologies and projects. In making these decisions or
concerning the ongoing efficacy of investments, the CEFC may
require information about specific issues from ARENA or the
CER.

5.3
The sharing of relevant and appropriate information between the
CEFC and ARENA and the CEFC and the CER is limited to the
circumstances spelt out in the ARENA Act and the CER Act
respectively and this is not a general ability for the CEFC to
obtain or request information.

Summary of new law

5.4
The bill includes a new section 73A in the ARENA Act, which
provides that ARENA may disclose information to CEFC if the
disclosure will enable or assist the CEFC to perform or exercise
any of its functions or powers.

5.5
The bill amends section 49 of the CER Act, to add the CEFC to the
list of bodies with which the CER may disclose ‘protected
information’. Section 49 specifies the circumstances in
which the CER may disclose such information and the manner in which
this may occur.

Comparison of key
features of new law and current law

New
law

Current law

ARENA
may disclose information to the CEFC, if the disclosure will
enable or assist the CEFC to perform or exercise any of its
functions or powers .

No
provision is made for the sharing of information by ARENA with the
CEFC.

The
CER may disclose protected information to the
CEFC.

The
CER may not disclose protected information to the CEFC unless the
disclosure is otherwise authorised by Part 3 of the CER
Act.

Detailed explanation of new
law

Disclosure of information by
ARENA

5.6 ARENA may disclose information to the
CEFC, if the disclosure will enable or assist the CEFC to
perform or exercise any of its functions or powers . This will facilitate the sharing of
information between ARENA and the CEFC and ensure the two have a
close working relationship. [Schedule 5, item 1, section 73A, ARENA
Act]

Disclosure of information by the
CER

5.7 The CER may disclose protected information to
the CEFC in accordance with the requirements of section 49 of the
CER Act (which is described below). [Schedule 5, item 2, section 49(1), CER
Act]

5.8
Information obtained by the CER may be commercially
sensitive. For example, it could disclose the market share of
a corporation, or details of its supply arrangements. Part 3
of the CER Act, including section 49, seeks to ensure that
information obtained by the CER is not disclosed unnecessarily or
put to unauthorised use. Personal information collected under
Part 3 of the CER Act is subject to the Privacy Act 1988 . It should be
noted that, under Information Privacy Principle 11.3, a person,
body or agency to whom personal information is disclosed shall not
use or disclose the information for a purpose other than the
purpose for which the information was given to the person, body or
agency.

5.9
Section 43 of the CER Act provides that it is an offence for a
person who is, or has been, an official of the CER to disclose or
use ‘protected information’ - in broad terms,
information obtained in an official capacity - unless one of
a number of exceptions apply. The penalty for that offence is
up to two years’ imprisonment or 120 penalty units (currently
$13,200), or both. This penalty is the same as applies to a
similar offence in secrecy provisions (section 23) of the NGER
Act.

5.10
Section 4 of the CER Act defines ‘official of the
Regulator’ broadly, to include not only CER members and
staff but also:

â¢
public sector employees (state, territory or Commonwealth) whose
services are made available to the CER in connection with the
performance of its functions; and

â¢
consultants engaged by the CER.

5.11
In broad terms, the exceptions - that is, the circumstances
in which ‘protected information’ can be disclosed or
used - include disclosure to specified bodies listed in
subsection 49(1) of the CER Act. The bill amends this list to
include the CEFC. [Schedule 5, item 2, section 49(1), CER
Act]

Application and transitional
provisions

5.12
The amendments to the ARENA Act and the CER Act commence on the
same day as section 3 of the CEFC Act (once enacted). Clause
2 of the CEFC Bill provides that clause 3 of that bill will
commence on a single day to be fixed by Proclamation.
However, if the provisions do not commence within the period of 6
months beginning on the day that the CEFC Bill receives the Royal
Assent, they commence on the day after the end of that
period. [Section
2]

Background

The gaseous fuels sector

Liquefied Petroleum
Gas

6.1
LPG is produced either directly through the processing of crude oil
and natural gas or as a by-product of the petroleum refining
process. LPG is generally supplied for consumption in
pressurised containers and is composed of mixtures of propane and
butane, with bottled LPG used for domestic purposes usually
composed solely of propane.

6.3
LPG for non-transport uses is supplied by approximately 5 or 6
resellers. Of these, 3 are responsible for approximately 90
per cent of supply of non-transport LPG and 2 or 3 smaller
resellers are understood to be responsible for the remainder.
The supply chains by which LPG reaches the end consumer can be
complex. In some rare cases, it will not be readily
determinable at the marketer level whether a particular supply of
LPG is ultimately used for transport or non-transport purposes (for
instance, where LPG is delivered by the marketer into a tank from
which LPG used for both automotive and stationary heating is
withdrawn).

6.4
Transport uses of LPG were brought under the fuel tax system on 1
December 2011 to implement the longstanding plan for energy content
based taxation of alternative transport fuels, but will not be
subject to a carbon price. Non-transport LPG is not currently
covered by the fuel tax system. However, under the Clean
Energy Package it will be brought into the fuel tax system from 1
July 2012 to allow for the application of an equivalent carbon
price.

6.5
In 2009-2010 approximately 800, 000 tonnes of LPG was sold into the
stationary LPG market. This would result in approximately 2.4
million tonnes of carbon dioxide equivalent emissions. This
would account for approximately 0.7 per cent of total estimated
emissions to be covered under the carbon pricing mechanism in
2012/13.

Liquefied Natural Gas

6.6
LNG is natural gas (primarily methane) that has been cooled to
approximately minus 163 degrees Celsius. LNG produced in
Australia is primarily exported, with domestic LNG consumption
accounting for less than one tenth of 1 per cent of Australian
production. Key uses of LNG are as an industrial chemical and
for electricity generation.

6.7
LNG is generally produced at large processing facilities, and
sometimes from upstream supplies of natural gas that will not have
been subject to coverage under the carbon pricing mechanism.
There are 3 large producers of LNG for domestic non-transport
consumption, and it is expected that in most cases downstream uses
of supplies of LNG will be readily determinable.

6.8
Domestic LNG consumption in 2009-2010 was in the region of 35,000
tonnes, leading to approximately 105,000 tonnes of carbon dioxide
equivalent emissions. Based on this level of emissions,
domestic LNG consumption would account for about 3 hundredths of
one per cent of total emissions estimated to be covered under the
carbon pricing mechanism in 2012/13.

Compressed Natural
Gas

6.9
CNG is created by compressing natural gas for storage in tanks at
pressures of around 200-240 bar. Key
“non-transport” uses of CNG are as fuel for forklifts
and off-road mining vehicles. Non-transport CNG is generally
produced for own use on-site, from supplies of natural gas that
will be subject to carbon pricing mechanism coverage.

6.10
Disaggregated statistics for domestic non-transport CNG consumption
are not available, but CNG consumption is expected to be lower than
LNG consumption.

Current treatment of gaseous fuels under the
Clean Energy Future Plan

6.11
Under the Clean Energy Future Plan, an equivalent carbon price will
be applied to emissions from non-transport LPG, LNG and CNG through
a reduction in fuel tax credits or through changes to excise from 1
July 2012.

6.12
Gaseous fuels are used in large part as transport fuels, and were
included under the fuel tax arrangements along with liquid
transport fuels that face an equivalent carbon price for certain
business transport and non-transport uses. Transport gaseous
fuels are already covered under the fuel tax arrangements (for the
purpose of applying excise duty rather than the carbon
price). As noted in the regulation impact statement for the
Clean Energy Future Plan, applying a carbon price to transport
fuels thorough the fuel tax system has several advantages over the
use of the carbon pricing mechanism, including making use of
existing business systems and avoiding the need for liable entities
to deal with both the ATO and the CER.

6.13
On this basis, it was considered that it would be relatively
straightforward and minimise compliance costs to use the fuel tax
system to apply a carbon price to non-transport uses of gaseous
fuels, which are also used for transport purposes. However,
there are a number of differences between transport and
non-transport supplies of gaseous fuels compared to liquid
fuels. Transport gaseous fuels would be subject to coverage
under the excise system irrespective of whether or not carbon
pricing is applied, whereas non-transport gaseous fuels would not
be subject to fuel tax system coverage in the absence of the carbon
price. By comparison, liquid fuels used for both transport
and non transport purposes are covered under the excise system
irrespective of whether or not carbon pricing is applied.

6.14
Non-transport gaseous fuels also have a lower frequency of supply
and billing in some instances. For instance, on some
occasions LPG is supplied to a central tank for distribution to
multiple users via a reticulated (pipeline) system for commercial
use. A substantial period of time may elapse between the
delivery of LPG and billing for supply after a user withdraws LPG
from the reticulated system, potentially exacerbating cash carrying
costs of carbon price payments relative to transport uses.

The problem

6.15
Industry stakeholders for non-transport LPG and LNG have raised
compliance cost and efficiency concerns with the inclusion of
non-transport gaseous fuels under the fuel tax arrangements rather
than the carbon pricing mechanism.

6.16
Coverage under the fuel tax arrangements generally requires the
settlement of excise returns on a weekly basis with an additional 6
days provided beyond the weekly excise period to enable suppliers
to reconcile invoices issued during that week and finalise
settlement. By comparison, submission of reports and
settlement of liabilities under the carbon pricing mechanism would
occur twice for each year of the mechanism’s fixed price
period (2012-13 to 2014-15) and once for each year of the
mechanism’s flexible price periods (2015-16 and onwards).

Compliance costs

6.17
Coverage of non-transport LPG and LNG under the excise system
imposes compliance costs for suppliers on top of the costs incurred
as a result of their participation in the excise system for
transport gaseous fuel. These additional costs relate to the
need to submit excise returns and make payments in relation to a
larger volume of supplies.

6.18
In the case of CNG an unknown but small number (estimated at up to
50) of producers of CNG for non-transport purposes that would
not otherwise be required to participate in the excise system would
also be required to install relatively expensive metering equipment
to meet the requirements of the excise system. More
importantly, industry feedback indicates that the costs of
installation of this equipment would curtail expansion of
production and use of CNG by small producers.

Efficiency and fairness
concerns

6.19
More regular payments under the fuel tax system during the
mechanism’s fixed price period will result in increased cash
carrying costs for suppliers of gaseous fuels relative to other
non-transport energy sources, such as natural gas and
electricity. In addition gaseous fuels suppliers will not
have access to the flexibility in meeting emissions obligations
provided by the ability to purchase units on international and
domestic markets available under the carbon pricing mechanism.

6.20
These differences, relative to carbon pricing mechanism coverage,
will potentially create marginal distortions affecting the
competitiveness of non-transport gaseous fuels when compared with
other non-transport fuels over the longer term.

Objectives

6.21
The problem being considered is the best approach to apply a carbon
price to non-transport gaseous fuels. In this context, the
key objectives for any approach adopted are to:

â¢
Maximise the economic efficiency of the carbon price, and in
particular to:

-
Incentivise emissions reduction at least cost by sending out a
clear signal about which activities should be reduced;

-
Minimise any competitive disadvantage arising from the way in which
the carbon price is applied;

Options

LPG and LNG

â¢
Option B: Mandatory coverage of all LPG and LNG under the carbon
pricing mechanism. Under this option some supplies of LPG and
potentially also LNG would remain under the fuel tax
arrangements. However, this would occur in very limited
circumstances, as noted above, where it is not possible for the
supplier of LPG or LNG to distinguish whether the supply is going
to be used for transport or non-transport purposes. For
instance, this would occur where a marketer of LPG supplies LPG
into a tank from which LPG is withdrawn for both transport and
non-transport purposes.

â¢
Option C: Coverage on a voluntary opt-in basis under the carbon
pricing mechanism, with currently legislated fuel tax arrangements
for a carbon price continuing to apply to those entities that
choose not to opt-in.

6.23
Also as with Option B, some supplies of LPG and potentially also
LNG would remain under the fuel tax arrangements (and could not be
opted in). However, this would occur in very limited
circumstances, as noted above, where it is not possible for the
supplier of LPG or LNG to distinguish whether the supply is going
to be used for transport or non-transport purposes.

6.24
Because of the difficulty and associated costs in identification by
LPG and LNG suppliers of the end uses of all non-transport gaseous
fuel, complete mandatory coverage was not considered a viable
option.

6.25
A secondary question for consideration was the date of commencement
of carbon pricing mechanism coverage under options B and C, with
dates of 1 July 2012 and 1 July 2013 considered.

6.27
Opt-in coverage was not considered for CNG as the ability for
individual CNG producers to opt-in or out of direct management of
liabilities can be provided under mandatory carbon pricing
mechanism coverage. This is possible because mandatory
coverage would involve natural gas suppliers being liable for gas
supplied to entities that manufacture CNG, and the existing
obligation transfer number mechanism provided for in the CE Act
will allow CNG producers to take on obligations from their supplier
for natural gas used to produce CNG.

6.28
A similar approach to mandatory coverage is not possible for LPG
and LNG as the former is not always produced from natural gas and
the latter is not produced exclusively from supplies of natural gas
that will be subject to carbon pricing mechanism
coverage.

Impacts and analysis

LPG and LNG

6.29
The impacts for options for LPG and LNG are summarised in diagram
5.1 and set out in more detail under the headings below.

Diagram
6.1 Impacts of options for LPG and LNG
Coverage

Option A: Status
Quo

Option B: Mandatory
Coverage

Option C: Opt-in
Coverage

Advantages:

â¢
Avoiding administration costs of dual systems

â¢
Avoiding compliance costs of dual systems

Advantages:

â¢
Reduced cash carrying costs (vs Option A)

â¢
Increased flexibility in meeting obligations (vs Option A)

â¢
Reduced administrative complexity (vs Option C)

Advantages:

â¢
Reduced cash carrying costs (vs Option A)

â¢
Increased flexibility in meeting obligations (vs Option A)

â¢
Flexibility to choose between mechanism and fuel tax coverage.

Disadvantages:

â¢
Compliance cost of regular excise returns

â¢
Cash carrying costs

â¢
Reduced flexibility to meet obligations.

Disadvantages:

â¢
Mandatory carbon pricing mechanism compliance costs

â¢
Marginally increased administration cost (vs Option A)

Disadvantages:

â¢
Increased administration cost of dual systems (vs Options A &
B)

Option A: maintain the status
quo

6.30
The main advantage of continuing coverage of non-transport LPG and
LNG solely under the alternative fuel tax arrangements is avoiding
complexities and costs associated with businesses being required to
participate in two systems, one for non-transport fuels (the carbon
pricing mechanism) and the other for transport fuels (the fuel
excise system), as would be the case for Option B.

6.31
An associated advantage is avoiding the need for the ATO and the
CER to maintain and reconcile dual systems for compliance under the
fuel tax arrangements and the carbon pricing mechanism. Dual
systems would be required under Option C, and, to a lesser extent,
Option B.

6.32
The disadvantages of maintaining the status quo are:

â¢
Compliance costs for industry associated with submitting regular
excise returns for a larger volume of supplies of LPG and LNG.

â¢
Cash carrying costs for LPG and LNG suppliers from more regular
payments under the fuel tax arrangements relative to a cash
carrying advantage under the carbon pricing mechanism during the
mechanism’s fixed price period. For instance, one of
the three large LPG suppliers, which is responsible for about 30
per cent of the sector’s supply, would on this basis be
required on average to make 52 weekly carbon price payments each
year of approximately $300,000, but also would generally be billing
their customers on a regular basis. Under the carbon pricing
mechanism, it would make one payment of approximately $12 million
towards the end of the financial year, and a further payment of
approximately $4 million in the February next following the
financial year.

There is no need
to maintain separate systems for transport and non-transport fuels
because coverage will be solely under the fuel tax
arrangements.

Removed need to
reconcile dual systems for compliance

As only one system
is used there is no need to reconcile systems to ensure that a
supply of LPG or LNG has not evaded coverage.

Compliance costs
with submitting invoices and returns

More regular
submission of returns and payment of obligations is required under
the excise system than under the carbon pricing
mechanism.

Cash carrying
cost

Suppliers of LPG
and LNG will only be required to pay carbon obligations once or
twice per year under the carbon pricing mechanism, but payments
will be required approximately weekly under the fuel tax
arrangements. This will lead to higher costs associated with
carrying cash for more regular payments.

Reduced
flexibility to purchase emissions units

Participants in
the carbon pricing mechanism may purchase international and
domestic emissions units to meet obligations during the mechanisms
flexible price period. This will enable them to manage timing
of payments (i.e. choosing when to buy units), and if they
can purchase units cheaply than the average price paid under the
carbon pricing mechanism, they may gain a price advantage over
payments under the excise system.

Option B: mandatory
coverage

6.33
The advantages of mandatory coverage of non-transport LPG and LNG
are:

â¢
Reduced cash carrying costs for LPG and LNG suppliers during the
carbon pricing mechanism’s fixed price period relative to the
status quo.

â¢
Increased flexibility to manage emissions obligations through the
purchase of emissions units during the mechanism’s flexible
price period relative to the status quo.

â¢
Reduced administrative complexity in comparison to Option C,
associated with the ATO and the CER maintaining and reconciling
dual systems for compliance under the carbon pricing mechanism and
under the fuel tax arrangements.

6.34
The disadvantage of mandatory coverage is the potential compliance
costs associated with carbon pricing mechanism participation.
These include costs associated with managing unit
obligations. A broadly analogous estimate for costs of
participation of a large natural gas supplier under the previously
proposed Carbon Pollution Reduction Scheme was that initial costs
to set up systems for compliance would be approximately $375,000
and that ongoing costs of compliance would be approximately
$291,000. To the extent that the largest LPG suppliers will
already be managing carbon pricing mechanism liabilities in respect
of other operations these costs will be largely mitigated.
However, for smaller suppliers of LPG and LNG and those that are
not participants in the carbon pricing mechanism these costs would
be new.

6.35
In respect of timing of coverage, mandatory coverage from
1 July 2013 would require participation by LPG and LNG
suppliers under the fuel tax arrangements for one year from 1 July
2012 to 1 July 2013, when coverage under the carbon pricing
mechanism would commence. This would entail LPG and LNG
suppliers facing increased cash carrying costs for one year.
However, coverage from 1 July 2012 would create substantial risks
that implementation agencies would have insufficient time to
develop detailed systems for carbon pricing mechanism coverage and
adequately test these with industry stakeholders.

Table 6.2 Option B additional
explanation:

Advantage/Disadvantage

Explanation

Reduced cash
carrying cost

Suppliers of LPG
and LNG will only be required to pay carbon obligations once or
twice per year under the carbon pricing mechanism, but payments
will be required approximately weekly under the fuel tax
arrangements. This will lead to higher costs associated with
carrying cash for more regular payments.

Increased
flexibility to purchase emissions units

Participants in
the carbon pricing mechanism may purchase international and
domestic emissions units to meet obligations during the mechanisms
flexible price period. This will enable them to manage timing
of payments (i.e. choosing when to buy units), and if they
can purchase units more cheaply than the average price paid under
the carbon pricing mechanism, they may gain a price advantage
relative to payments under the excise system.

Reduced
administrative complexity

It will be simpler
for the CER (which is the administrator of the carbon pricing
mechanism) and the ATO (which administers the excise system) to
reconcile records between the carbon pricing mechanism and excise
system as almost all non-transport LPG and LNG supplies will be
covered under the carbon pricing mechanism with transport LPG and
LNG covered under the excise system. The limited exception is
cases where it is not possible to apply carbon pricing mechanism
coverage to LPG and LNG because it is not possible for the supplier
of the LPG or LNG to determine whether the LPG or LNG supplied will
be used for transport purposes which will not be subject to a
carbon price or non-transport purposes, which are. This
exception will lead to a limited requirement for the ATO to deal
with non-transport LPG and LNG.

Carbon pricing
mechanism compliance costs

To meet
liabilities under the carbon pricing mechanism liable entities will
be required to report emissions and purchase emissions units to
meet assessed emissions liabilities. This will entail costs
around measurement and purchasing units. As coverage will be
mandatory under option B, the LPG or LNG supplier will not have the
option of choosing whether or not compliance under the mechanism or
excise system would be preferable.

Option C: voluntary opt-in
coverage

6.36
The advantages of a voluntary opt in approach to coverage of LPG
and LNG are:

â¢
Increased flexibility to manage emissions obligations through the
purchase of emissions units during the mechanism’s flexible
price period, relative to the status quo.

6.37
The ability to elect whether to opt-in or remain under the carbon
pricing mechanism allows LPG and LNG suppliers to assess the costs
and benefits of participation under each approach and adopt the one
that best reflects their particular circumstances. For
instance, smaller suppliers that would not otherwise expect to
develop unit purchasing and liability management capabilities may
elect to remain under the fuel tax arrangements whereas large
suppliers that expect to have obligations under the carbon pricing
mechanism for other activities might choose to opt-in to mechanism
coverage.

6.38
The disadvantages of opt-in coverage are that this option would
have the highest administrative complexity for the CER and the ATO
as it would require dual systems for compliance under the carbon
pricing mechanism and fuel tax systems and close interaction
between the two agencies to reconcile these systems. Coverage
under the fuel tax arrangements will apply for both the relatively
limited LPG and LNG supplies that will be impracticable to cover
under the carbon pricing mechanism, and for any LPG and LNG
suppliers that choose not to opt-in to the carbon pricing
mechanism. Introducing an opt-in element will introduce an
additional element of complexity to already complex fuel tax
arrangements for gaseous fuels.

6.39
Only a small number of businesses (around 8 or 9 in total comprised
of 5-6 supplying LPG and 3 supplying LNG) supply non-transport LPG
and LNG. In addition feedback from the three largest
suppliers of LPG (which account for approximately 90 per cent of
the market) is that they would participate in the carbon pricing
mechanism, and it is possible that LNG suppliers and the smaller
LPG suppliers would choose to participate in the carbon pricing
mechanism. Given these factors the expense of setting dual
systems may not be justified.

6.40
Similarly to Option A above, opt-in coverage from 1 July 2013 would
require participation by LPG and LNG suppliers under the fuel tax
arrangements for 1 year from 1 July 2012 to 1 July 2013, when
voluntary coverage under the carbon pricing mechanism would
commence. This would entail those LPG and LNG suppliers that
would choose to opt in to mechanism coverage facing increased cash
carrying costs for one year. However, coverage from 1 July
2012 would create substantial risks that implementation agencies
would have insufficient time to develop detailed systems for carbon
pricing mechanism coverage and adequately test these with industry
stakeholders.

Table 6.3 Option C additional
explanation

Advantage/Disadvantage

Explanation

Reduced cash
carrying cost

Suppliers of LPG
and LNG will only be required to pay carbon obligations once or
twice per year under the carbon pricing mechanism, but payments
will be required approximately weekly under the fuel tax
arrangements. This will lead to higher costs associated with
ensuring funds are available to make more regular
payments.

Increased
flexibility to purchase emissions units

Participants in
the carbon pricing mechanism may purchase international and
domestic emissions units to meet obligations during the mechanisms
flexible price period. This will enable them to manage timing
of payments (i.e. choosing when to buy units), and if they
can purchase units cheaply than the average price paid under the
carbon pricing mechanism, they may gain a price advantage relative
to payments under the excise system.

Ability to elect
whether to opt-in

The ability to
elect whether to opt-in under option C will allow suppliers of LNG
and LPG to assess the advantages or disadvantages of participation
under each of the mechanism and the excise system and choose the
one that best matches their particular business needs. In
particular, this may be relevant for 2-3 small participants in the
LPG sector which may not be participants in the mechanism and may
have relatively limited resources to manage emissions obligations
under the carbon pricing mechanism.

Increase
administrative complexity

It will be
necessary for the CER (which is the administrator of the mechanism)
and the ATO (which administers the excise system) to maintain
systems and reconcile records between the carbon pricing mechanism
and excise system. This will apply to supplies of LPG and LNG
which are opted-in to the carbon pricing mechanism and to those
limited cases where it is not possible to apply carbon pricing
mechanism coverage to LPG and LNG because it is not possible for
the supplier of the LPG or LNG to determine whether the LPG or LNG
supplied will be used for transport purposes (which will not be
subject to a carbon price) or non-transport purposes (which are
subject to a carbon price). This will lead to a higher
requirement for the ATO and the CER to reconcile the two systems
than under options B and C.

CNG

6.41
The impacts for options for CNG are summarised in diagram 5.2 and
set out in more detail under the headings below.

Diagram 6.2 Impacts of options
for CNG Coverage

Option A: Status
Quo

Option B:
Mandatory Coverage of CNG

Advantages:

â¢
Provides for direct management of carbon liabilities under the
excise system if preferred

â¢
Very small increase in the liabilities of natural gas suppliers
under the carbon pricing mechanism.

Option A - maintain the status
quo

6.42
The advantage of a retaining coverage of non-transport CNG under
the fuel tax arrangements is that to the extent that any CNG
producer wishes to manage its carbon pricing obligations directly
it is possible that it may prefer to do so by making payments under
the excise system rather than under the carbon pricing
mechanism.

6.43
The disadvantages of coverage under the fuel tax arrangements
are:

â¢
The imposition of a requirement for an indeterminate number of
small users to install metering equipment to enable participation
in the excise system. Installation of metering equipment
would be costly, and industry feedback indicates that this cost
would be sufficient to stop expansion of the use of CNG.

â¢
The requirement that all producers of CNG directly manage carbon
pricing obligations through participation in the excise system
(with the exception of producers of CNG for non commercial
“home” use which are exempted from excise system and
instead face a passed-through carbon price under the carbon pricing
mechanism on the supplies of natural gas that they convert to
CNG).

â¢
To avoid incurring a ‘passed through’ carbon price from
their natural gas supplier, CNG producers would also need to obtain
and use an obligation transfer number which would also require them
to register and report under the National Greenhouse and Energy
Reporting Act, and to manage carbon price liability for any natural
gas that is supplied to them and that is not used to manufacture
CNG.

â¢
More regular payments under the excise system and lack of
flexibility to manage obligations through the purchase of emissions
units.

Table 6.4 Option A additional
explanation:

Advantage/Disadvantage

Explanation

Coverage under the
excise system may be preferred

It is possible
that a CNG producer may prefer to manage its obligations directly
under the excise system rather than under the carbon pricing
mechanism. Carbon pricing mechanism coverage involves
different costs to the excise system, relating to purchasing units
to meet emissions obligations and differing reporting
obligations.

Installation of
metering equipment

Installation of
metering equipment is required under the excise system to
accurately measure the amount of CNG produced. Under carbon
pricing mechanism coverage the default obligation would apply to
the natural gas supplier that supplied natural gas to the CNG
producer. The natural gas supplier would then pass the carbon
price through to the CNG producer. Direct payment of
liabilities and measurement of CNG production would not be required
by the CNG producer.

Requirement to
directly manage obligations

To participate in
the excise system CNG producers will be required to measure, report
and pay the carbon price for CNG produced approximately
weekly. Under carbon pricing mechanism coverage the natural
gas supplier that supplied the gas used to produce CNG would face
the carbon pricing obligation and the CNG producer would simply
face a higher price charged by the natural gas supplier (i.e.
it would not need to directly manage its obligation by measuring,
reporting and directly paying the carbon price for CNG
produced).

Requirement to
quote an obligation transfer number

Supplies of
natural gas that are used to produce CNG will be subject to a
carbon price under the carbon pricing mechanism. If CNG is
covered under the current fuel tax arrangements for applying a
carbon price, this would lead to the CNG facing a carbon price
twice, once under the mechanism and then again under the excise
system. To eliminate this double pricing, the CNG producer
would be able to quote an obligation transfer number to the natural
gas supplier to remove the carbon price under the mechanism.
This will be an addition piece of compliance for the CNG producer
and lead to extra work for the CER that administers the carbon
pricing mechanism.

More regular
payments and lack of flexibility to manage unit
obligations

Producers of CNG
would be required to make payments of the carbon price
approximately weekly under the fuel tax arrangements. Under
the carbon pricing mechanism only one or two payments a year will
be required. This will lead to higher costs associated with
ensuring funds are available to make more regular
payments.

Participants in
the carbon pricing mechanism may purchase international and
domestic emissions units to meet obligations during the mechanisms
flexible price period. This will enable them to manage timing
of payments (i.e. choosing when to buy units), and if they
can purchase units more cheaply than the average price paid under
the carbon pricing mechanism, they may gain a price advantage
relative to payments under the excise system.

Option B - “Mandatory” carbon
pricing mechanism coverage

6.44
The advantages of mandatory coverage of non-transport CNG under the
carbon pricing mechanism are:

â¢
The removal of the requirement for producers of non-transport CNG
to (i) register and report under the National Greenhouse and Energy
Reporting Act, and (ii) install metering equipment to allow for
excise system compliance and reporting.

â¢
The removal of the requirement for non-transport CNG producers to
actively manage carbon pricing obligations. The carbon
pricing mechanism obligation will by default rest with the supplier
of natural gas, which will pass through the carbon price to users,
including CNG producers.

â¢
Flexibility for non-transport CNG producers to opt-in to manage
carbon pricing obligations. CNG producers will be able to use
existing provisions of the carbon pricing mechanism to quote an
obligation transfer number and directly assume obligations under
the carbon pricing mechanism if they wish to do so.

â¢
A reduction in administrative costs associated with the ATO
administering and ensuring compliance for up to approximately 50
small CNG users under the excise system.

6.45
The disadvantage of mandatory coverage is that there may be a small
increase in the amount of liabilities for natural gas
suppliers. However, any increase in costs is likely to be
negligible as the increase in liability will be tiny relative to
size of obligations managed by gas suppliers for residential and
commercial gas users.

Table
6.5 Option B additional explanation

Advantage/Disadvantage

Explanation

Removal of
requirement to install metering equipment

Installation of
metering equipment is required under the excise system to
accurately measure the amount of CNG produced. Under carbon pricing
mechanism coverage the default obligation would apply to the
natural gas supplier that supplied natural gas to the CNG producer.
The natural gas supplier would then pass the carbon price through
to the CNG producer. Direct payment of liabilities and measurement
of CNG production would not be required by the CNG
producer.

Removal of
requirement to directly manage obligations

To participate in
the excise system CNG producers will be required to measure, report
and pay the carbon price for CNG produced approximately weekly.
Under carbon pricing mechanism coverage the natural gas supplier
that supplied the gas used to produce CNG would face the carbon
pricing obligation and the CNG producer would simply face a higher
price charged by the natural gas supplier (i.e. it would not need
to directly manage its obligation by measuring, reporting and
directly paying the carbon price for CNG
produced).

Removal of
requirement to quote an obligation transfer
number

Supplies of
natural gas that are used to produce CNG will be subject to a
carbon price under the carbon pricing mechanism. If CNG is covered
under the current fuel tax arrangements for applying a carbon
price, this would lead to the CNG facing a carbon price twice, once
under the mechanism and then again under the excise system. To
eliminate this double pricing, the CNG producer would be able to
quote an obligation transfer number to the natural gas supplier to
remove the carbon price under the mechanism. This will be an
additional piece of compliance for the CNG producer and lead to
extra work for the Clean Energy Regulator that administers the
carbon pricing mechanism, and would not be required under
carbon pricing mechanism coverage.

Flexibility to
opt-in to direct management of liabilities under the carbon pricing
mechanism

Under carbon
pricing mechanism coverage the default obligation would apply to
the natural gas supplier that supplied the natural gas from which
CNG is produced. The natural gas supplier would then pass the
carbon price through to the CNG producer. However, the CNG producer
would be able to use the existing obligation transfer number
provisions of the carbon pricing mechanism to take the liability
for emissions under the mechanism. In this event the CNG producer
will take on the obligations to report and purchase and surrender
emissions units to meet emissions obligations, and the natural gas
supplier will be relieved of these obligations.

Reduction in
administrative costs

Up to
approximately 50 small producers of CNG that were not previously
required to participate in the excise system (as non-transport CNG
is not currently required to participate in the excise system)
would be required to register and meet other requirements to
participate in the excise system. This would lead to
administration, education and enforcement costs for the
ATO.

Consultation

6.46
In submissions made during the passage of the Clean Energy Bills in
2011 and in representations to Government, LPG sector businesses
requested coverage under the carbon pricing mechanism instead of
under the fuel tax arrangements. On this basis, the
Government committed to consult on options for including gaseous
fuels in the carbon pricing mechanism similar to the liquid fuels
opt-in scheme, and established an industry technical working group
in November 2011.

6.47
Membership of the Technical Working Group included the three
largest LPG sector participants responsible for the supply of over
90 per cent by volume of non-transport LPG, and also
representatives of LPG producers and distributors of transport
LPG. Producers and distributors of LNG, and CNG producers
were also represented on the Technical Working Group.

6.48
The key messages from the working group in relation to LPG and LNG
were:

â¢
there is broad support for the coverage of non-transport LPG and
LNG in the carbon pricing mechanism, including support from
participants responsible for the supply of over 90 per cent by
volume of non-transport LPG for coverage under the carbon pricing
mechanism from 1 July 2012;

â¢
there was concern from some participants that adequate time should
be provided to allow for the implementation of coverage and along
with opportunity to identify and resolve any potential unintended
impacts on transport uses of gaseous fuel, which would remain
within the excise arrangements.

6.49
Engagement by CNG stakeholders in consultation was more limited,
partially reflecting the more dispersed nature of CNG
production. However, feedback identified:

â¢
some concerns with compliance costs associated with the current
position of excise system coverage for small scale CNG production,
thereby limiting opportunities for expansion of CNG;

â¢
a general level of comfort with carbon pricing mechanism coverage,
particularly to the extent that this may reduce some of the
administrative and compliance costs associated with excise
participation.

Conclusion

LPG and LNG

6.50
On balance the advantages of coverage of non-transport LPG and LNG
under the carbon pricing mechanism of reducing compliance costs and
providing greater flexibility for liable entities in the sector to
meet carbon pricing obligations warrant the inclusion of
non-transport LPG and LNG in the Carbon Pricing Mechanism.
Therefore, Option A (the status quo) is not preferred.

6.51
On balance a mandatory approach is preferable to a voluntary
approach to coverage as it would reduce the complexity of the
carbon price and associated compliance and administration
costs. On this count Option B (and also Option A) is superior
to Option C.

6.52
Mandatory coverage requires that liable LPG and LNG suppliers
assume the costs of managing emissions unit obligations and
participating in the carbon pricing mechanism. However, most
liable entities for LPG and LNG will already be managing
liabilities under the carbon pricing mechanism. From the
perspective of the Government, mandatory coverage has advantages in
reducing administrative complexities and costs compared to an
opt-in coverage.

6.53
Conversely opt-in coverage may reduce overall compliance for a
small number of smaller LPG suppliers (two or possibly three), by
providing them with flexibility to assess which approach is best
for their particular business circumstances. However, it is
not clear whether the smaller LPG suppliers would chose to remain
under the fuel tax arrangements and this flexibility comes at a
significant cost in the form of increased administrative complexity
and cost for the Government. Therefore given the uncertainty
surrounding the use of the opt-in scheme and the administration
costs associated with its provision regardless of its use, on
balance Option B is preferred overall.

6.54
Regarding timing of coverage, the significant risks associated with
implementing coverage by 1 July 2012 outweigh the cash carrying
costs for LPG and LNG suppliers for one year of coverage under the
fuel tax arrangements. The preferred timing option (for
either mandatory or voluntary opt-in coverage) is for coverage to
commence from 1 July 2013.

CNG

6.55
There are clear advantages to Option B (coverage of non-transport
CNG under the carbon pricing mechanism) in terms of reduced
compliance costs for small producers, and reduced administrative
costs for the Government relative to the status quo. Moving
to mandatory coverage under the carbon pricing mechanism also
provides greater flexibility for CNG producers to choose whether or
not to directly manage their carbon pricing obligations.

6.56
The preferred option is Option B.

Implementation and review

6.57
Amendments to the CE Act would be required for carbon pricing
mechanism coverage of non-transport LPG and LNG (whether on an
opt-in or mandatory basis), along with the development of detailed
implementing regulations.

6.58
For mandatory coverage the primary implementing agency would be the
CER. However, the ATO would retain responsibility for
administering the continuation of the excise arrangements for those
limited supplies of LPG and LNG that would not be subject to
coverage under the carbon pricing mechanism.

6.59
For opt-in coverage the ATO would retain a larger role in relation
to the fuel tax arrangements commensurate with the potentially
higher level of coverage. In either case systems and
procedures will be developed to clarify the interaction between the
CER and the ATO on the administration of carbon pricing
arrangements for LPG and LNG.

6.60
The additional burden for the CER would be small, as the number of
additional entities responsible for LPG and LNG will be small (at
around 8 or 9 in total) and most will already be participants in
respect of other emissions.

6.61
The implementing agency for the coverage of CNG will be the Clean
Energy Regulator. Legislative arrangements for coverage of
CNG will be initially implemented via legislative changes to excise
arrangements for CNG producers and the adjustment of administrative
arrangements by the ATO.

6.62
The additional burden for the Clean Energy Regulator would be
small, as the default liability for CNG will rest with natural gas
suppliers that will already be liable entities under the carbon
pricing mechanism, and the number of CNG producers that might wish
to quote an obligation transfer number to directly take on
obligations under the scheme is likely to be small (as it is
estimated there are up to 50 non-transport CNG producers, and only
a small proportion of these are likely to wish to

[2]
See Chapters 1 and 4 of the Explanatory Memorandum for the Clean
Energy Bill 2011 for further explanation of how a person assesses
and meets liabilities for covered greenhouse gas emissions under
the CE Act.